IPv4 address shortage driving internet designers to despair

The IPv4 address block 127.0.0.0/8 is entirely reserved for loopback applications, as provided for in RFC 1122 and IANA's IPv4 Special-Purpose Address Registry. In other words, just as the familiar localhost address 127.0.0.1 points to the user's own system, all addresses in the 127.0.0.0/8 block have an exclusively local scope and are routed back within the system. Loopback addresses can be used, for example, to run multiple databases or a Pi-hole on the same system behind a local DNS resolver, without having to make any port changes. No traffic to loopback addresses is found on the wider internet, because no packets are routed outside the local system. Indeed, if any were to arrive from an external source, they would be rejected (in line with RFC 2827 and RFC 3704).

Conventional unicast addresses

However, an Internet Draft has recently been put forward, suggesting that only the 127.0.0.0/16 block (i.e. all addresses beginning 127.0) should be reserved for loopback. The other blocks (127.1.0.0 to 127.255.0.0) could then be made available as conventional unicast addresses.

Although the authors refer to a "relatively minor change", implementation of their proposal would have enormous impact. Modifications would be required to all hosts' network stacks, all network hardware and all network software. The main drawbacks are likely to be that the addresses freed up by the change are unusable in practice, due to faulty routing/acceptance, and that software that was previously accessible only locally (e.g. back-end databases) would suddenly be accessible from the internet.

IPv4 Unicast Extensions Project

The release of the bulk of the 127.0.0.0/8 block has been proposed as part of the authors' IPv4 Unicast Extensions / Cleanup Project. They want a total of 419 million IPv4 addresses that are currently reserved for special applications made available for general use.

Although release of the 127.0.0.0/8 block would mean the availability of an extra 16 million IPv4 addresses, the proposal has met considerable scepticism. The most widely expressed criticism is that implementation of the modifications to the global internet infrastructure necessitated by the move would be more challenging to than implementation of IPv6 [1, 2, 3, 4, 5, 6, 7].

Market prices rising sharply

The seriousness of the IPv4 address shortage is apparent from the rapidly rising market prices. According to the broker IPv4 Market Group, the going rate in autumn 2021 was 30 to 35 euros per address, depending on the block size. The graph below shows how the upward trajectory of IPv4 address prices has steepened. Rival broker IPv4.Global reports prices 10 euros higher [1, 2].

Figure 1: Market price of an IP address: change over time. Source: IPv4 Market Group.

A year ago, network specialist Andree Toonk calculated that the 100 million IPv4 addresses then owned by Amazon were worth about 2.5 billion dollars. Since then, Amazon and other big cloud service vendors such as Microsoft, Google and Oracle have steadily continued to buy up address blocks, ultimately at the expense of smaller providers and startups.

Figure 2: Percentage of the IPv4 address space owned by Amazon. Source: Scott Seligman.

Waiting list for /24 blocks

It's now 2.5 years since RIPE NCC, the Regional Internet Registry (RIR) for greater Europe and West Asia, issued the last IPv4 address blocks. Although anyone wanting to obtain addresses has since been referred to the market, applicants continue to join the waiting list for /24 blocks of 256 IPv4 addresses, which occasionally become available after being returned to the RIR.

Figure 3: The number of LIRs waiting for IPv4 addresses at RIPE NCC. Source: RIPE NCC.

Big money

The dispute between AFRINIC and the company Cloud Innovation illustrates that retrieving unofficially acquired or even stolen address blocks can be far from straightforward.

Furthermore, large address blocks assigned in the past but remaining largely unused are not necessarily returned to RIRs, because of the huge value they have acquired. In 2020, for example, the WIDE Project (one of the parties responsible for Japan's internet infrastructure) and APNIC set up the Asia Pacific Internet Development Trust (APIDT) together. The unused portion of the 43/8 block administered by WIDE was transferred to the Trust for resale, with the proceeds to be used for development of the internet in the Asia-Pacific (APAC) region. Sale of the addresses is expected to generate about half a billion euros.

A year earlier, Amateur Radio Digital Communications (ARDC), the network administrator for a group of amateur radio enthusiasts (AMPRNet), sold a block of four million addresses to Amazon for 108 million dollars. Again, the proceeds of the sale were transferred to an endowment fund to be used for the development of network and communications technology. Prior to the sale, ARDC owned the entire 44/8 block of more than 16 million addresses, so it retains enough addresses for several more similar sell-offs in the years ahead.