Old and New Ranking Systems in the Japanese Martial Arts
Most students of Japanese-based martial arts are familiar with the various colored belts that mark rankings, and the concept of a “black belt” as an expert martial artist has made its way into popular culture. But the “kyu/dan” structure of martial arts ranking, marked by those colored belts, is relatively new to Japanese martial arts, for all that it has become the de facto standard. The older schools used a very different system, that essentially focused on licenses to teach — rankings below that not necessarily being a major focus.
Historical background for the “koryu”
The concept of the old schools, koryu bujutsu, sometimes ko budo; and new schools, gendai budo, in Japanese martial arts has both philosophical and historical foundations, with a very specific cutoff. To be a kyoryu, an art must have been founded before the Meji Restoration (1868) and continued in lineage since that time.  In this case “lineage” is a fairly specific and documented transmission of the “ownership” of the art.
The Ryu as a martial and social institution
In this use, -ryu is a suffix related to ryūha, the full word meaning “school” (Skoss). It is not strictly related to the martial arts, but defines concept of a (https://en.wikipedia.org/wiki/Ry%C5%AB_(school)) school in the same sense that the Hudson River School defines a particular style of painting.
But in the martial arts tradition, a ryu defines a style of fighting, but is much more than that. It defines a “school” of techniques whose transmission from teacher to teacher is controlled by authorization to teach the system, and this authorization is not, traditionally, given lightly. But a ryu is a relatively small group of people who interact closely, and likely includes a number of them living in the same household[i]. Control of the ryu is passed from the originator or iemoto to successive headmasters (soke), usually but not exclusively within the headmaster’s family. In some cases candidates to take over the ryu were adopted into the soke’s family before being named as his successor  (Lowry, 1998). needs more sources, though
Grading in the koryu traditions
It must be emphasized that permission to teach the skills of a ryu is tightly controlled, and marked by the issuing of teaching licenses, which are specifically formal permission to teach. While not all ryu use the same levels, some of the most common ones were (Hacker, 2017), (Lowry, 1998):
The menkyo shoden, or “license of incomplete transmission” is the lowest teaching grade
The menkyo chuden, “license of middle transmission”
The menkyo okuden “license of deep secrets”
The menkyo niden, “license of hidden transmission”.
The menkyo kaiden, “license of compete transmission” is the highest possible license, and indicates that the holder has mastered the complete teaching of the system. Depending on the school and the individual, only the designated successor may be given this license (Ariza, 2013), or it may be given more broadly. Sometimes limitations are placed on the holder in terms of number of students they may have, or licenses they may issue.
Prior to the teaching licenses, there are several levels of student certificates:
The okuiri is the lowest formal certificate, but requires fairly significant study, generally four or more years of study. Above this is the mokuroku certificate, which may be one or two levels.  The mokuroku represents registration on the formal rolls of the ryu as a student In some schools, this may be first the “first registration” shomokuroku and then the gomokuroku , collectively representing decades of training under a specific master.
In some cases, an applicant to study in a particular school would be asked to undergo a probationary period, called te hodoki, or untying of hands, before being accepted as a beginning student. Acceptance as a basic student was marked by swearing an oath of allegiance to the ryu, the keppan (Warner & Draeger, 1980, p. 43).
New kid on the block: the advent of kyu/dan grading
In the kyu/dan system, followers of the art are broadly divided into two group, the kyu-graded junior students (the mudansha) and the dan-ranked seniors (yudansha). Kyu grades start at the largest number and decrease towards the ikkyu “1st kyu” which is the highest of the kyu grades. The dan ranks start at shodan (1st dan) and increase from there to the highest rank in the system. Collectively, the holders of the dan ranks are called “black belts” although in some systems the very senior yudansha may wear other colors. The transition from kyu grades to dan ranks is generally taken to indicate basic competence in the full curriculum of the art.
In contrast, to the older menyko system, the kyu/dan system of grading is relatively recent. It first became well known in the martial arts as a result of its adoption (closely based on the then-existing ranking system in go) by Dr. Jigoro Kano as part of the development and codification of judo in the late 1800’s. Various discussions of the reasons for this have been advanced, ranging from commercialization to the needs of a large training establishment.. Regardless of why Dr. Kano created the system, it rapidly became the de facto standard way of ranking in modern martial arts. In fact, at least one source, (Draeger, 1976), asserts that using this system identifies a system as a new system, although there is some evidence to the contrary—Aikido in its early days appears to have used the menkyo  system at least in part (Hacker, 2017), and Shindo Muso Ryu currently awards both kyu/dan and okuiri/mokuroku/menkyo certificates (Shindo Muso Ryu, n.d.).
See notes in https://en.wikipedia.org/wiki/Dan_(rank) on teaching licenses under the dan system
Draeger, D. (1976, Apil 1). Ranking Systems in Modern Japanese Martial Arts: Modern vs. Classical. Retrieved November 7, 2020, from Judo Info: Online Dojo: https://judoinfo.com/ranks/
Hacker, M. J. (2017). The Language of Aikido: a practitioner's guide to Japanese characters and terminology. TalkingBudo.com.
Lowry, D. (1998). The Classical Japanese Martial Arts in the West:: Problems in Transmission. Retrieved Novermber 07, 2020, from Koryu.com: The Classical Martial Arts Resource: https://www.koryubooks.com/library/dlowry4.html
Skoss, D. (n.d.). Koryu Bujutsu Glossary. Retrieved 11 07, 2020, from Koryu Com:: https://www.koryubooks.com/library/kb1glossary.pdf
[i] It was not uncommon for some students to physically live at the school, training essentially full time in exchange for maintaining the dojo. Such students are called in Japanese uchi deshi or kenshūsei (Hacker, 2017, p. 81)