I have tried discussing this with other martial artists and would like to hear more opinions. If a Black belt (ex. 3rd Dan) leaves an association,federation, alliance, etc. to begin his/her own private practice, what are their options in regards to testing to the next rank. Do they they wait appropriate time lengths and honorarily test themselves? Do they find a higher rank from a similar style or same style to give them some type of honorary test?
For example: General Choi began creating modern Taekwon-do after he received his 2nd dan in Karate. Who administered his dan exams from 1st dan to 9th? If he created the system how can someone out rank him to test him?
So to wrap everything up, my main point is, if you begin your own system, what is the most ethical way to continue ranking up?
It's a valid question. If you take it all the way back to the beginning of martial arts with belt systems, who gave the first 10th dan belt?
Look at it another way. Around the world, some countries have monarchs and 'Royal Families' and people are judged to be of royal or common blood. How the heck did that start? Some guy clubbed another guy over the head, called himself 'King', others agreed to call him King, and Bob's your uncle, he's King and his brats are 'Royal Family'. Until the next guy clubs the King over the head....
So here's the story...
Typically, if a person starts their own style, with or without having achieved a given rank in any other system, they are whatever rank they say they are. They are, to use the Japanese term, 'soke' or originator of the style, and hence the highest possible rank in that style.
A person off the street could do it, someone with no martial arts training of any kind.
That's bad, though, right? Well, yeah. It's definitely not a good thing for martial arts in general. And a lot of people are doing it. They get some training or they watch some videos or read a book, decide they are qualified to start their own style and off they go. They teach crap because they know crap. The crank out black belts who can't defend themselves and nobody cares, because all the black belts want is that belt, they don't really care that they can't do anything.
Now, more in line with what you were asking, what sometimes happens is that a person who is trained in a given style decides to found their own, different, style. They have 'legitimate' rank in the style they came from, but they lack a higher rank necessary to perpetuate their style.
In these cases, they often either self-promote (as you suggested) or they seek promotion from others. Often the others are an association or a group of martial artists, often a group that is more-or-less in the business of promoting people.
Some associations are more 'legitimate' than others. They have perhaps achieved a degree of legitimacy in the eyes of many martial artists by not simply granting advanced degrees when paid to do so, but by recognizing martial artists who are well-known and respected by many, but who for many legitimate reasons find themselves unable to be promoted. Perhaps they founded their own style and are reluctant to self-promote, but are indeed hard-working martial artists whose contributions are recognized and who have put in the many decades of work to prove they are no fly-by-night or wannabe master. Perhaps they found themselves the sole remaining leader of a style when the highest-ranking master dies without promoting an heir to a higher degree.
So you have people who just do whatever the heck they want. Hey, I'm a 23 year old 11th dan in Rumble-Ryu, the Link Wray Guitar Slinger style. Who is to say I am not? There's no law against it. Besides, join my dojo and you get these cool sunglasses.
Then you have the people who may or may not be legitimate martial artists, but who need, for business reasons, to be higher ranked so they can promote others to high ranks (and get students, etc, etc).
Then you have the serious and legitimate martial artists who for various extremely legitimate reasons, find themselves unable to be promoted due to circumstances beyond their control, but their lifelong work and dedication to the martial arts are worthy of recognition.
The big problem is telling the difference between these fine upstanding individuals.
There are no styles which did not originally have to 'level up' themselves; all recognized martial arts styles started with someone who either self-promoted or was declared to be the highest rank by others. Whether or not that is a good thing or a bad thing is highly dependent on the people involved.