A record 28 million dollars of bitcoins were seized from the server of the black website Silk Road.
The money was formally transferred to the U.S. government several months after it was seized.
The government claimed the digital currency was used to facilitate money laundering, prosecutors announced Thursday.
According to the New York Post, the action came a day after a Manhattan judge approved the forfeiture of the bitcoins and the website.
The move also comes three months after San Francisco entrepreneur Ross Ulbricht was arrested on charges he operated an online marketplace for illegal drugs.
He has pleaded not guilty to charges of narcotics trafficking, computer hacking and money laundering.
In a news release, U.S. Attorney Preet Bharara said it was the largest forfeiture of bitcoins ever by the government, the report said.
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He called Silk Road 'a global cyber business designed to broker criminal transactions'.
The website is believed to have collected more than one billion dollars in revenue from more than 100,000 customers, the report added.