Although many have shown a lot of angst about Bitcoin use on Silk Road, buying drugs is far from a major use of Bitcoin.
As the recent Forbes Article about Dread Pirate Roberts, the man behind Silk Road, points out, Silk Road is estimated to be doing about $30-45M in annual revenue. They also report that Atlantis, a newly launched competitor to Silk Road, did around $500k in revenue in the first two months of operation, so annualized to about $6M. Combined we’re talking at max $50M in annual revenue. Now it isn’t good that $50M of drugs is being sold for Bitcoin, but this needs to be put into context for total Bitcoin transaction volume. According to Blockchain.info, average daily Bitcoin transaction volume has been around $25-30M for the last 30 days. That annualized out to about $9-11 billion in annualized transaction volume. So about 0.5% of Bitcoin transactions were to buy drugs.
Wikipedia claims that the illegal drug trade constitutes 1% of world GDP. Bitcoin seems to underindex to other payment mechanisms for buying drugs.