Most people think bitcoin is an anonymous digital cash, totally untraceable. But the basic fact is, bitcoin is the very opposite of anonymity. All the transactions of all the people are public and is verified by multiple entities. Bit coin blocks are like pages of a bank ledgers and multiple copies of are floating around the world, copied and replicated.
The only anonymity the users have is the notion, these bitcoin wallets exist only in the bitcoin universe and it can not be linked to real life entities. This is a big assumption to make. Whenever bitcoin universe intersects real universe there is potential for the anonymity to be broken. A vendor delivering goods maintaining records like "bitcoin wallet xxx placed order for yyy delivered to address zzz" will link the wallets to real identities and clues.
I thought "These blocks go well into the past, so people who have conducted illicit transactions in the past also have their wallets linked to the transactions. These can not be erased or modified. Multiple copies of the blocks exist. So the law enforcement can catch them years from now". More informed slashdotters explained that those "expired" blocks have been purged from most miners. Only their final checksums were carried forward. So past transactions to buy drugs or something can not be decrypted.
But NSA and other agencies have been sucking up internet traffic like a giant vacuum. They know more about the value of the blocks being validated (Mining is a misleading term. Mining is repeatedly validating the block till the checksum meets a criterion). Those blocks exist in the vault.
So yes, every time a drug dealer or a hired assassin gets nabbed and his/her bitcoin wallet gets decoded, all the wallets that dealt with him will be recovered. The web will grow. There is potential for a very large number of people to be caught by the law years after their "illegal" activity happened. If it is a time bound offense they might be lucky. But there is no statuette of limitation for murder and other higher felonies. Bitcoin blocks might turn out to be a huge law enforcement tool after all.
But most likely to catch illegal downloads than drug dealing, given the tenacity and connections of MPAA and RIAA.