1850, American English, possibly an alteration of brother, or from British colloquial butty "companion" (1802), itself perhaps a variant of booty in booty fellow "confederate who shares plunder" (1520s). But butty, meaning "work-mate," also was a localized dialect word in England and Wales, attested since 18c., and long associated with coal miners. Short form bud is attested from 1851. Reduplicated form buddy-buddy (adj.) attested by 1952, American English.
Buddy system attested from 1920.