Where does the word Hobbit come from?

J.R.R. Tolkien was born on January 3, 1892. In honor of the author’s beloved Lord of the Rings series of books, we pay tribute to his fantastic creation, the hobbit. Hobbits are similar to humans, but they are short and have hairy feet. Bilbo Baggins, Samwise Gamgee, and Frodo Baggins are the most-well known hobbit examples. In J.R.R. Tolkien’s fiction, they’re the peaceful folk who reside in Middle Earth.
(On a side note, if you’ve ever wanted to know what the “J.R.R.” in Tolkien’s name stands for, here’s the answer.)
As you may have guessed, hobbits are a fictional race born in Tolkien’s imagination. He even created an etymology for the word; hobbit derives from the word Holbytla, which means “hole-dweller” in Old English. Tolkien invented three groups of hobbits. The Harfoots were the smallest of all the hobbits and also the first to enter Eriador, a large region of Middle Earth. The Fallohides are the least numerous of the Hobbits and tall and fair. The Stoors were the last to enter Eriador. They stand out as being the only hobbits that are willing to swim.
Now here’s the fascinating and slightly spooky detail. There are no references to hobbits before Tolkien’s publication, except for one. In 1895, the folklorist Michael Aislabie Denham published a long list of supernatural creatures. Here’s an excerpt: “. . . nixies, Jinny-burnt-tails, dudmen, hell-hounds, dopple-gangers, boggleboes, bogies, redmen, portunes, grants, hobbits . . .”
While Tolkien was a masterful adapter of mythology and folklore, there isn’t the slightest suggestion that he was aware of this list. Synchronicity, coincidence, or serendipity? Tolkien’s interest in language predates his career as a professional writer. After World War I, the Oxford English Dictionary was Tolkien’s first employer. His job at the dictionary involved working on the history and etymology of Germanic words that begin with “W.”