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What happens to the unused IP addresses in the subnet that falls in between two routers?

Last updated on February 1, 2024

        This is probably a un-realistic question, but a question nonetheless, that has been bugging me since quite a while now.

Consider the below network diagram, where R1 is a part of a network (subnets are indicated by ovals), and it further splits the network into several /16 networks, one of which is Now the interfaces for the routers (denoted by the green links) have the addresses for R1 (the first IP in the subnet) and for R2.
Further, R2 splits the /16 network assigned to it into two /24 networks. The logic is similar.
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Coming to the question, if we look at the link between R1 and R2, of the available 2^16 host addresses available in that subnet (due to /16 mask), only two are used for the router interfaces. What would happen to the rest addresses in that subnet? Since R2 would have to use up some bits more than than the 16 available ones in its subnet, to create further subnets, will the subnet between the R1 and R2 go into a black hole and never be used again?

Updating the diagram after discussion in the comments. I am now removing the extraneous part from the problem and only keeping the relevant network that I am having my question about.

Basically subnet/CIDR literature online tells me that you can further divide the assigned network range into smaller by borrowing the network bits from the assigned mask. That is what R1 and R2 are doing, as seen in the diagram. I am really confused as to whether this is an overlap and if so, how to avoid it, also, what should R1 and R2 advertise.

Any help in clearing this concept will be greatly appreciated.

Update #2:
This article EXACTLY demonstrates what I am trying to achieve — though, it mentions VLSM which I reckon is similar to CIDR, but for classful networks.

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Update: (Final solution)

After discussion with all the esteemed members, it seems that, the only problem with the initial diagram was the wasted address space. Also, there are some CIDR-specific precautions to be taken while assigning addresses to hosts, to avoid routing problems. Keeping all this in mind, I have made a final diagram that uses link subnets of /30 and advertisements accordingly.

enter image description here

Elaborating the diagram even more to add some hierarchy:

enter image description here

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