When did they start using colored belts in martial arts?

The coloured belt system was made in the 19th century by Kano Jigoro who was the founder of judo. Before that they usually only had the white and black belt, once you had done so many years you would be handed a black belt.

There is a myth that goes round that the belt system of colours was inspired by the training with the white belt, since you would have years till you get your black belt the white belt would get dirtier going from lighter to darker colours. That's why the colours were like what they were to determine rank, the darker they were the more likely the more years you had done.

Systems that do not use coloured belts are more likely to be self defence martial arts e.g. krav maga.
 
The belt system was developed by a Jujitsu teacher named Jigoro Kano who also modified his art to create Judo by taking out many of the more deadly techniques so that it could be taught in an academic environment. His primary purpose for the belt system was to establish a separation from beginner, intermediate student and advanced students. In the beginning he had the following structure:

White - New Student / Novice
Green - Intermediate Student
Brown - Advanced Student
Black - Instructor

Over the years other belts have been added in but the meaning has been lost. The only purpose was to separate students based on their levels of understanding and expertise in the art they were studying. Today it is commercialized heavily in many systems.

Systems that do not use belt systems still have a ranking order though called the Menkyo system which predates the belt, or Kyu/Dan system. Some of them are:

Aikido
Aikijutsu
Iaido
Kendo
Kenjutsu
and various forms of Jujitsu

The Menkyo system was to classify students into groups based on their knowledge and expertise in their art. It was where the belt system developed from.
 
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