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So I was wondering what the origin of this name is for the dragon? Is it a known word from a language with a meaning or is it a completely made up word?

Or perhaps it evolved from another word... its a pretty unusual name, and unlikely to originate from an english word (unless it originates from the word smug?)

Did Tolkien ever say where he got the word from ?

Dave
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In his 1938 letter the the Editor of the Observor, Tolkien explicitly stated that the name Smaug is derived from the low Germanic; "To squeeze through a hole".

"The dragon bears as name – a pseudonym – the past tense of the primitive Germanic verb Smugan, to squeeze through a hole: a low philological jest. The rest of the names are of the Ancient and Elvish World, and have not been modernised."
The Letter of JRR TOlkien - Number 25

In earlier drafts, Smaug was also know as Pryftan (from the Welsh meaning 'Fire Worm') and Trāgu, a corruption of the Old English meaning 'to burrow [into the ground]'. As @jimmyShelter has noted, the root is identical to Sméagol and smial.

Valorum
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    Interesting fact: this is the same name as Old English Sméagol. –  Jul 29 '14 at 07:30
  • Jimmy Shelder officially succumbed to the Dark Side of the Stack – DVK-on-Ahch-To Jul 30 '14 at 17:53
  • @DVK - Well, it's a new look, certainly. – Valorum Jul 30 '14 at 18:13
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    Another interesting fact: pryftan (or rather, pryftân) does not mean ‘fire worm’ in Welsh—it means ‘worm fire’. It ought to be either pryf tân or tânpryf (or perhaps that should be tânbryf; I'm not quite up to scratch on when lenition does and does not occur in Welsh compounds) to mean ‘fire worm’. – Janus Bahs Jacquet Jan 21 '16 at 06:39
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I have always thought that the name "Smaug" was related to Polish "smok" = dragon. Tolkien might have had more than one source for this name.

Mrs Maggot
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"Smaug" probably came from the name "zmaj" for Slavic dragons.

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I see the name somehow related to "smog", for the smoke coming from the dragon.

algiogia
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There is a type of Lizard Called a Smaug giganteus or Giant Girdled Lizard, which somewhat looks like a dragon; perhaps he was referring to that.

Niall C.
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Smaug
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