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One correspondent believes [the term] derives from the Chadless keypunch (named for its inventor), which cut little U-shaped tabs in the card to make a hole when the tab folded back, rather than punching out a circle/rectangle; it was clear that if the Ch

Citation Text: 

One correspondent believes [the term] derives from the Chadless keypunch (named for its inventor), which cut little U-shaped tabs in the card to make a hole when the tab folded back, rather than punching out a circle/rectangle; it was clear that if the Chadless keypunch didn't make them, then the stuff that other keypunches made had to be 'chad'.

Citation Source: 
New Hacker's Dictionary 1994

A Glossary of Archival and Records Terminology