6 November 2020 | 7 min read

How Can We Alleviate IPv4 Exhaustion

Back in the 1980s, no one would have foreseen that the Internet would grow the way it did and that IPv4 addresses would become a scarce asset. Today, we face a shortage of available IPs and the emergence of a secondary IP address market, proving that IPv4 addresses are sought after and are a valuable…

The Internet

Back in the 1980s, no one would have foreseen that the Internet would grow the way it did and that IPv4 addresses would become a scarce asset. Today, we face a shortage of available IPs and the emergence of a secondary IP address market, proving that IPv4 addresses are sought after and are a valuable commodity. The current market climate presents an opportunity for IP owners to monetize their unused IPv4 resources and an opportunity for internet facing businesses to acquire said resources to scale their operations.

How did we run out of IPv4 addresses?

Internet Protocol version 4 or IPv4 was introduced in 1981 and became the standard Internet Protocol, still routing most Internet traffic. IPv4 has a size of 32 bits and, therefore, provides 4,294,967,296 (232) unique addresses. However, large IPv4 addresses are reserved for particular purposes such as private networks and multicast addressing and are unavailable for public allocation.

IPv4 addresses were distributed by IANA (Internet Assigned Numbers Authority) to the five RIRs (Regional Internet Registries) in blocks of approximately 16.8 million addresses each, but have been exhausted at the IANA level since 2011. Likewise, the RIRs distributed blocks of 16.8 million addresses to various companies and organizations.

When the Internet was still in its infancy in the 1980s, organizations were allocated far more IP addresses than they needed because the initial classful network allocation method was inadequate to reflect reasonable usage. Therefore, large companies and universities got class A address blocks with over 16 million IPv4 addresses each because a class B block with 65,536 addresses was too small to fulfill their needs.

Classful network allocation led to inefficient IP distribution as organizations had an oversupply of IP addresses. Many of them continue to utilize public IP addresses for devices not accessible outside their local network. Moreover, some allocated IP address blocks or large portions of them have never been used.

By the early 1990s, it was apparent that the pool of available IPv4 addresses was rapidly depleting. The IPv4 addressing structure provided an insufficient number of publicly routable addresses to provide a unique IP address to every device connected to the Internet.

Efforts to delay IP address exhaustion began with introducing several stopgap refinements, such as CIDR methods and strict usage-based allocation policies by RIRs, to allocate addresses to local Internet registries. Furthermore, network renumbering and subnetting were used to reclaim address blocks allocated in the early days of the Internet, when the Internet still used inefficient classful network addressing.

In November 1991, IETF (the Internet Engineering Task Force) created the Routing and Addressing Group (ROAD) to tackle the scalability problem caused by the classful network allocation system.

In September 1993, CIDR (Classless Inter-Domain Routing) was introduced and enabled the transition from classful network addressing to Classless Inter-Domain Routing to delay the exhaustion of IPv4 addresses substantially. 

In May 1994, NAT (Network Address Translator) was introduced, which allowed a private network to use one public IP address on the Internet interface of the main Internet router, and permitted private addresses in private networks to further prolong IPv4 availability.

Although the main reason for IPv4 address exhaustion was insufficient capacity in the original Internet infrastructure design, several additional factors increased the demand on the limited address supply.

The principal market forces that significantly accelerated Pv4 address depletion included the rapidly growing number of Internet users, always-on devices, and mobile devices.

During the 1990s, only a small fraction of households had Internet access, but just 15 years later, nearly half had broadband connections. Many new Internet users in developing countries, notably in China and India, contributed significantly to the exhaustion of IPv4 addresses.

Throughout the 1990s, consumers accessed the Internet predominantly via the telephone model dial-up. The rapid increase in the number of dial-up networks increased address consumption rates, but the pool of assigned IP addresses was shared among many customer bases. However, by 2007, broadband Internet access began to exceed 50% penetration in many markets. Since broadband connections are always active, the address uptake by ISPs continued to drain the pool of available IP addresses.

IPv4 increasingly became the standard when computing power was introduced into hand-held devices, such as mobile phones that became viable Internet hosts, depleting the available pool of IPv4 addresses even further.

APNIC was the first RIR to run out of free allocated IPv4 addresses on 15 April 2011. After that, not everyone that needed an IPv4 address could get one. On 31 January 2011, the IANA allocated the last two unreserved /8 address blocks to APNIC according to RIR request procedures. On 3 February 2011, IANA allocated the remaining five reserved but unallocated /8 address blocks to each RIR, effectively exhausting the IANA pool.

Nevertheless, all the RIRs have set aside a small pool of IP addresses to transition to IPv6. ARIN and LACNIC have reserved the last /10 for the transition to IPv6. APNIC and RIPE NCC have reserved the last /8 block for IPv6 transition, while AFRINIC reserved a /11 block.

What led to IPv4 becoming a valuable commodity

The IPv4 market is scarcity-driven and poses a challenge to companies looking to scale their business. The scarcity of IPv4 resources has led to IPv4 becoming a valuable commodity. Though we haven’t run out of IP addresses quite yet, available IPv4 resources are quickly depleting, with less than 4% of the world’s supply left for allocation. Furthermore, many IPv4 addresses are unused and are in the hands of large organizations and businesses. 

It’s worth noting that some organizations have returned large blocks of IPv4 addresses, such as Stanford University, which returned their Class A IP address block in 2000, making 16 million IP addresses available. Other organizations that have done so include the US Department of Defence, Interop, and BBN Technologies.

Now that the pool of 4.3 billion IPv4 addresses has nearly dried out, the cost per IP address is skyrocketing. In December 2014, the average Price per IP of a /16 was approximately $5 per IP. In January 2017, the average Price per IP of a /16 was roughly $10 per IP. In February of 2018, the average Price per IP of a /16 was approximately $15 per IP. 

2019 saw IP address prices increase by 35%, reaching $20-25 per IP. Experts predict that the price per IP address can reach $30 and beyond. Estimates say that IPv4 address prices will increase by as much as 100% by 2025.

The rapid depletion and high market demand for IPv4 addresses contributed to the ever-growing prices significantly. Back when the IP prices were around $5 per IP, no one thought that prices would increase four-fold, and telecommunication companies would even struggle to board customers due to the shortage of IP addresses. Naturally, the shrinking supply of and rising demand for IPs are increasing their value.

The solution to IPv4 exhaustion

Despite all of the measures taken to prolong the availability of IPv4, they only put off the inevitable exhaustion of available IPv4 addresses. So, in 1998, the IETF initiated a replacement for IPv4, which came to be known as IPv6. 

IPv6 was designed to address the IP shortage problem long-term. IPv6 is the Internet’s next-generation protocol and uses 128-bit addresses allowing 2128, which is 3.4×1038 network addresses. IPv6 offers significantly more numerical addresses and simplifies address assignments, and adds additional network security features. 

IPv6 deployment has been in progress since the mid-2000s but is still in the early stages of deployment. Major ISPs, networking equipment manufacturers, and web companies worldwide pledged to permanently enable IPv6 for their products and services in June 2012. Since then, IPv6 adoption has started to increase significantly across the globe.

In 2011, only 16-26% of conventional computers supported IPv6 and only 0.2 preferred IPv6. At the same time, approximately 0.15% of the top million websites were IPv6 accessible in 2011.

In January 2015, native IPv6 utilization hit approximately 5% as measured by connectivity among Google users. In January 2018, native IPv6 utilization hit 20%. By October 2020, native IPv6 utilization hit 33%.

Nevertheless, IPv6 requires a significant investment of resources and poses incompatibility issues with IPv4 as each version defines the format of addresses differently. The problem is that IPv6 hosts cannot directly communicate with IPv4 hosts and have to communicate via special gateway services. Today, IPv4 and IPv6 are in simultaneous use.

The transition to IPv6 is a long-term proposition. The delay in IPv6 adoption means that IPv4 addresses have long-term value and are increasingly significant to companies wanting to grow their business.

Currently, we face an IPv4 shortage that IPv6 can’t immediately solve. However, the need for IPv4 addresses amid this shortage has inspired some creative solutions and gave rise to the IP address lease market.

As there is still a high demand for IPv4 resources, the IPv4 address lease market’s emergence is the solution to the current IPv4 scarcity. IPv4 assets have become a tradeable commodity in the current market climate, presenting monetization opportunities for IP owners.

The gap between the supply and demand of IPv4 addresses has led to the creation of companies that specialize in mediating the lease of IPv4 addresses. Such companies facilitate monetization and mitigate risks of the controlled IPv4 assets.

Companies that offer IP monetization and leasing services pair owners with small, mid, and large address blocks looking to monetize their unused IPv4 resources with companies and organizations ready to pay top dollar to acquire said resources. IP owners can take advantage of the short-term market and turn unused IP assets into an additional revenue stream.

On the other hand, the IP address lease market offers businesses in need of IP addresses to get their hands on some. Due to skyrocketing prices, buying IP addresses has become relatively expensive, but leasing them provides a cost-efficient solution for companies, enabling them to expand their business.

Not utilizing IPv4 assets means a loss of a potential revenue stream for companies. Many companies are not aware that their unused IPv4 resources have monetization potential that they can tap into. 

We know that there are approximately 822 million unused IP addresses owned by large corporations that haven’t yet released their current market value. By leasing IP addresses for $2.5 per year, companies could get a 15% return on investment.

Since IP addresses are a reusable resource, the lease market is perfect for keeping them this way. Leasing is beneficial for both sides – those wishing to lease and those wishing to monetize their IPv4 resources. 

Now that there are few IPv4 addresses to go around, the creation of IP markets to lease IPv4 addresses can temporarily solve the scarcity of IPv4. Although IPv6 adoption after IANA exhaustion is gaining traction, there will still be a demand for IPv4 addresses for years to come.

IP leasing is one of the key aspects of making sure there are sufficient IPv4 allocations available and to push the Internet forward. IPXO will be a game-changing platform, paving the way for more efficient network resource governance and traffic policing.