The Shang-dynasty oracle bones are thought to have been unearthed periodically by local farmers since as early as the Sui and Tang dynasties and perhaps starting as early as the Han dynasty, but local inhabitants did not realize what the bones were and generally reburied them.
During the 19th century, villagers in the area digging in the fields discovered a number of bones and used them as "dragon bones" (Chinese: 龍骨; pinyin: lóng gǔ), a reference to the traditional Chinese medicine practice of grinding up Pleistocene fossils into tonics or poultices.
The turtle shell fragments were prescribed for malaria, while the other animal bones were used in powdered form to treat knife wounds.

In 1899, an antiques dealer from Shandong Province searching for Chinese bronzes in the area acquired a number of oracle bones from locals, several of which he sold to Wang Yirong, the chancellor of the Imperial Academy in Beijing.
 Wang was a knowledgeable collector of Chinese bronzes and is believed to be the first person in modern times to recognize the oracle bones' markings as ancient Chinese writing similar to that on Zhou dynasty bronzes.
A legendary tale relates that Wang was sick with malaria, and his scholar friend Liu E was visiting him and helped examine his medicine.
They discovered, before it was ground into powder, that it bore strange glyphs, which they, having studied the ancient bronze inscriptions, recognized as ancient writing.
As Xu Yahui states:
"No one can know how many oracle bones, prior to 1899, were ground up by traditional Chinese pharmacies and disappeared into peoples' stomachs."

It is not known how Wang and Liu actually came across these "dragon bones", but Wang is credited with being the first to recognize their significance.
 Wang committed suicide in 1900 in connection with his involvement in the Boxer Rebellion, and his son later sold the bones to friend Liu E, who published the first book of rubbings of the oracle bone inscriptions in 1903.
News of the discovery of the oracle bones spread quickly throughout China and among foreign collectors and scholars, and the market for oracle bones exploded, though many collectors sought to keep the location of the bones' source a secret.
 Although scholars tried to find their source, antique dealers falsely claimed that the bones came from Tangyin in Henan.
In 1908, scholar Luo Zhenyu discovered the source of the bones near Anyang and realized that the area was the site of the last Shang dynasty capital.

Decades of uncontrolled digs followed to fuel the antiques trade, and many of these pieces eventually entered collections in Europe, the US, Canada and Japan.
The first Western collector was the American missionary Frank H. Chalfant (1862–1914).
Chalfant also first coined the term "oracle bone" in his 1906 book Early Chinese Writing, which was then borrowed into Chinese as "jiǎgǔ 甲骨" in the 1930s.

Only a small number of dealers and collectors knew the location of the source of the oracle bones or visited it until they were found by Canadian missionary James Menzies, the first person to scientifically excavate, study, and decipher them.
He was the first to conclude that the bones were records of divination from the Shang dynasty, and was the first to come up with a method of dating them (in order to avoid being fooled by fakes).
In 1917 he published the first scientific study of the bones, including 2,369 drawings and inscriptions and thousands of ink rubbings.
Through the donation of local people and his own archaeological excavations, he acquired the largest private collection in the world, over 35,000 pieces.
He insisted that his collection remain in China, though some were sent to Canada by colleagues who were worried that they would be either destroyed or stolen during the Japanese invasion of China in 1937.
The Chinese still acknowledge the pioneering contribution of Menzies as "the foremost western scholar of Yin-Shang culture and oracle bone inscriptions."
His former residence in Anyang was declared a "Protected Treasure" in 2004, and the James Mellon Menzies
The Shang-dynasty oracle bones are thought to have been unearthed periodically by local farmers since as early as the Sui and Tang dynasties and perhaps starting as early as the Han dynasty, but local inhabitants did not realize what the bones were and generally reburied them. During the 19th century, villagers in the area digging in the fields discovered a number of bones and used them as "dragon bones" (Chinese: 龍骨; pinyin: lóng gǔ), a reference to the traditional Chinese medicine practice of grinding up Pleistocene fossils into tonics or poultices. The turtle shell fragments were prescribed for malaria, while the other animal bones were used in powdered form to treat knife wounds.
In 1899, an antiques dealer from Shandong Province searching for Chinese bronzes in the area acquired a number of oracle bones from locals, several of which he sold to Wang Yirong, the chancellor of the Imperial Academy in Beijing.  Wang was a knowledgeable collector of Chinese bronzes and is believed to be the first person in modern times to recognize the oracle bones' markings as ancient Chinese writing similar to that on Zhou dynasty bronzes. A legendary tale relates that Wang was sick with malaria, and his scholar friend Liu E was visiting him and helped examine his medicine. They discovered, before it was ground into powder, that it bore strange glyphs, which they, having studied the ancient bronze inscriptions, recognized as ancient writing. As Xu Yahui states:
"No one can know how many oracle bones, prior to 1899, were ground up by traditional Chinese pharmacies and disappeared into peoples' stomachs."
It is not known how Wang and Liu actually came across these "dragon bones", but Wang is credited with being the first to recognize their significance.  Wang committed suicide in 1900 in connection with his involvement in the Boxer Rebellion, and his son later sold the bones to friend Liu E, who published the first book of rubbings of the oracle bone inscriptions in 1903. News of the discovery of the oracle bones spread quickly throughout China and among foreign collectors and scholars, and the market for oracle bones exploded, though many collectors sought to keep the location of the bones' source a secret.  Although scholars tried to find their source, antique dealers falsely claimed that the bones came from Tangyin in Henan. In 1908, scholar Luo Zhenyu discovered the source of the bones near Anyang and realized that the area was the site of the last Shang dynasty capital.
Decades of uncontrolled digs followed to fuel the antiques trade, and many of these pieces eventually entered collections in Europe, the US, Canada and Japan. The first Western collector was the American missionary Frank H. Chalfant (1862–1914). Chalfant also first coined the term "oracle bone" in his 1906 book Early Chinese Writing, which was then borrowed into Chinese as "jiǎgǔ 甲骨" in the 1930s.
Only a small number of dealers and collectors knew the location of the source of the oracle bones or visited it until they were found by Canadian missionary James Menzies, the first person to scientifically excavate, study, and decipher them. He was the first to conclude that the bones were records of divination from the Shang dynasty, and was the first to come up with a method of dating them (in order to avoid being fooled by fakes). In 1917 he published the first scientific study of the bones, including 2,369 drawings and inscriptions and thousands of ink rubbings. Through the donation of local people and his own archaeological excavations, he acquired the largest private collection in the world, over 35,000 pieces. He insisted that his collection remain in China, though some were sent to Canada by colleagues who were worried that they would be either destroyed or stolen during the Japanese invasion of China in 1937. The Chinese still acknowledge the pioneering contribution of Menzies as "the foremost western scholar of Yin-Shang culture and oracle bone inscriptions." His former residence in Anyang was declared a "Protected Treasure" in 2004, and the James Mellon Menzies 
Oracle bone