The term "Thug" derives from groups of robbers in British India in the early 19th century, which were suppressed by British military forces, and the "Thuggees" entered into pop culture as a murderous cult of religious fanatics (as depicted, for example, in Indiana Jones and the Temple of Doom). By the 1930s, however, the term had entered the American lexicon as a slang for a criminal, especially a violent one, and in that sense continues to see use today.

It's very difficult to say who originated the term "thug" in hip-hop circles, but the term "thug life" was popularized in gangsta rap by Tupac Shakur in his lyrics and writings, where he used it as the basis for describing his own philosophy of the "gangsta" lifestyle, since he stylized himself as a "thug." Most notably, in 1992 he formed the hip-hop group Thug Life, which in 1994 released its first album, Thug Life: Volume 1. Also, Tupac gave an interview with Entertainment Weekly where he said:

I don’t consider myself to be straight militant. I’m a thug, and my definition of thug comes from half of the street element and half of the Panther element, half of the independence movement. Saying we want self-determination. We want to do it by self-defense and by any means necessary. That came from my family and that’s what thug life is. It’s a mixture.

Tupac also famously discussed the "thug life" concept in a handwritten letter from prison in 1995, and it has formed a core part of his image.

Many of the subsequent uses of "Thug" in gangsta life can be traced fairly directly to Tupac's influence, but we're already running up hard against the 20-year rule.