The story of how potatoes came to be called spuds is a mundane one. As is often the case with such boring word origins, a fanciful explanation for the derivation of spuds is often given. This explanation is owed to the potato once being a much-maligned root in Britain and Europe.
When the potato was first introduced to Europe by the Spanish, in the 16th century, it was only grown as a curiosity in botanical gardens. As for food, it was considered only fit for pigs and, perhaps, poor country folks.
The fact that it was a member of the deadly nightshade family didn’t help, and the potato was blamed for many ailments, including tuberculosis, rickets, and syphilis. Perhaps not too far off the mark, it was also said to cause obesity, but, in addition, the potato was even blamed for war! The Russians called it the “Devil’s Apple.”
In 1800s Britain there was a group of activists dedicated to stamping out the potato. They called themselves the Society for the Prevention of an Unwholesome Diet. This “just so happened” to spell out the acronym SPUD. Some etymologists claimed that this was the origin for the potato being called a spud.
Since the word spuddy was once the nickname for a seller of bad potatoes, it has also been supposed that the word spud derived from this. However, the word spud is almost certainly earlier.
Yet another curious suggestion for the origin of spud for potato has to do with another name for a potato that is claimed to be common in Ireland: Murphy.
Since, for some reason, people named Murphy inevitably get the nickname Spud, and potatoes are sometimes called “Murphy,” the name Spud was also applied to potatoes. However, it is more likely, and often suggested, that the nickname of Spud for people named Murphy has to do with the name Murphy being one of the most common surnames in Ireland: “As common as potatoes.”
Edit (12/4/2017): A reader, whose name is Murphy and who has traveled all over Ireland has written to inform me that, although he was of course interested in the Murphy/Spud connection, he never, in all his travels, heard the potato referred to as a murphy. Although this may have been an older usage that has died out, it is likely that the above-suggested origin for the word spud is not credible.
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