I would also suspect 'foreign bodies', judging from the light peppering all over the crown. You can also see it has been turned down at some point (although for all I know, which is nothing, they were finished like that to get the concave shape).
I wouldn't worry too much now about the 'Why and how?' but would definitely replace the pistons, check very carefully for missing bits of casting around the valve guides and inlet tract, and also get the bores measured accurately top to bottom all ways up. No point spending good money on new pistons for worn bores really, although I'm sure we all have from time to time (says he guiltily). (Are there any areas of the crown that are faintly magnetic . . .?)
It also looks as if there's some marking on the upper surface of the top compression ring, but no matter now.
I'd just look forwards - rebuild with good bits, ensure carb and timing are set up correctly, and then be pretty confident it will all be OK.
In for a penny in for a pound frankly, with the crank etc to start the cash outflow. Ouch, but will be worth it Dave.