"insect, beetle," 1620s (earliest reference is to bedbugs), of unknown origin, probably (but not certainly) from or influenced by Middle English bugge "something frightening, scarecrow" (late 14c.), a meaning obsolete since the "insect" sense arose except in bugbear (1570s) and bugaboo (q.v.).
Probably connected with Scottish bogill "goblin, bugbear," or obsolete Welsh bwg "ghost, goblin" (compare Welsh bwgwl "threat," earlier "fear," Middle Irish bocanách "supernatural being"). Some speculate that these words are from a root meaning "goat" (see buck (n.1)) and represent originally a goat-like spectre. Compare also bogey (n.1) and Puck. Middle English Compendium compares Low German bögge, böggel-mann "goblin." Perhaps influenced in meaning by Old English -budda used in compounds for "beetle" (compare Low German budde "louse, grub," Middle Low German buddech "thick, swollen").
The name of bug is given in a secondary sense to insects considered as an object of disgust and horror, and in modern English is appropriated to the noisome inhabitants of our beds, but in America is used as the general appellation of the beetle tribe .... A similar application of the word signifying an object dread to creeping things is very common. [Hensleigh Wedgwood, "A Dictionary of English Etymology," 1859]
Meaning "defect in a machine" (1889) may have been coined c. 1878 by Thomas Edison (perhaps with the notion of an insect getting into the works). Meaning "person obsessed by an idea" (as in firebug "arsonist") is from 1841, perhaps from notion of persistence. Sense of "microbe, germ" is from 1919. Bugs "crazy" is from c. 1900. Bug juice as a slang name for drink is from 1869, originally "bad whiskey." The 1811 slang dictionary has bug-hunter "an upholsterer." Bug-word "word or words meant to irritate and vex" is from 1560s.