I hear the term “magic smoke” (or “magic blue smoke”) mainly from people who are messing around with electricity and who put it through an electronic component in volumes or directions that burn the component out.

The resultant puff of smoke brings the component’s behavior from the logical world to the physical one—tangible evidence of an unfortunate finality-of-outcome, an intricate IC become just a lump of charred sand again.

Likewise Unity could have done a whole lot of things with their licensing framework while users still had trust in their behavior. But now that they’ve blown out the figurative trust “chip,” they’re gonna have to find a way to get a new one before they get much out of tinkering further with their licensing circuit.

Electronics run on magic smoke. Once you let the smoke out, they no longer work.

I remember back when putting together PCs in the 90s if the cable for the IDE drive was connected incorrectly it would emit smoke - I didn't directly experience it, but any instructions I had read warned about it.

TLDR: When electronics burn out, they often release "magic smoke" that is believed to be the source of their power (since they almost always fail to work afterwards).

https://en.wikipedia.org/wiki/Magic_smoke