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n. ~ 1. The waste material created when holes are punched out of a paper medium, especially punched cards; chaff, computer confetti, and keypunch droppings. - 2. Perforated strips on the sides of continuous paper, removed after printing, that allow the paper to be feed through a printer on sprocket wheels; selvage, perf.

(New Hacker's Dictionary 1994) 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'.