A missionary was crossing Loch Ness when he encountered the spirit of the lake - a dragon. This wasn't a physical being, however, not like a bear or a giant, for he was able to banish it with the cross. This story, of the missionary banishing the Loch Ness Dragon is revealing because it's so similar to the tales missionaries, priests and monks would tell to prove their superiority to local deities, which may mean that The Loch Ness Monster legend began with the story of a local deity in the form of a water dragon.
This story certainly means that the belief in a water dragon dwelling in the Loch comes from ancient Scotland. There are three options for the nature of this legend:
1-The Loch Ness Dragon was a benevolent deity.
Eels and fish were common manifestations of the spirit of water in Celtic lore, and so were often some of the most sacred of animals, for Water was among the most important of deities to the Celtic peoples.
Given its size, however, the Loch Ness Dragon was likely more than this, however, for it's quite possible that he was a guardian, a protector of the people who lived along Loch Ness, for he likely prevented the their enemies and evil spirits from coming across the lake to attack them. Unfortunately this is primarily speculation as there aren't a lot of stories from this region in the early days. Though in other regions of Europe there are protective spirits which take the form of serpents and dragons The Welsh have tales of a red dragon which protected their land against enemies, though this dragon wasn't a water spirit it still indicates that such dragons existed in Europe. The Lithuanians and Slavic people have guardians and ancestral spirits who would take the form of serpents. In Russian lore a woman marries a white serpent of the water. While one of the landvættir (spirits of the land) which protects Iceland takes the form of a dragon. True there aren't a lot of records regarding this though there aren't very many records of anything in the Lore of Northern Europe so a shortage of records doesn't mean that the Loch Ness Dragon couldn't have been a guardian deity.
2-The Loch Ness Dragon actually is a monster which sought to devour and torment people. The Celts and Germanic people's had a number of Water Worms who poisoned wells and slaughtered people, so it's possible that the Loch Ness Dragon is one of these.
3-Mixed being, nature spirit which is good and bad at the same time.
There are many deities and spirits in European lore that are both good and bad at the same time. As I've mentioned before many deities and fairies seem to be their own opposites. Hermes was god of both thieves and merchants, the Scottish Glaistig were kindly spirits who would protect people's flocks and their children, but which could turn into vampires, than back into kind beings again in a single day and night.
This last aspect of the water dragon likely makes the most sense given that water was both good and bad. People would catch fish in the water, which was often an important source of food, but they would also drown in it. Thus it seems possible that the Loch Ness Deity was a multi-natured being. Much like a werewolf he was normally kind but could at times transform into a destructive and dangerous being.
Regardless of what the Loch Ness Dragon really was, however, I'm hopeful the notion of it as a duelistic dragon will be interesting and inspirational for writers.