Step 1 : Configure topology as given in pic.
Step 2 : Configure IP address According Topolgy.
Step 3 : Configure Loopback address
Step 4 : Check Protocol which is Cisco by default 

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 Step 1 : Configure topology as given in pic.


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Step 2 : Configure IP address According Topolgy.

R1#
R1#configure terminal
Enter configuration commands, one per line.  End with CNTL/Z.
R1(config)#
R1(config)#interface serial 1/0
R1(config-if)#
R1(config-if)#ip address 192.168.12.1 255.255.255.0
R1(config-if)#no shutdown
R1(config-if)#

R2

R2#configure terminal
Enter configuration commands, one per line.  End with CNTL/Z.
R2(config)#
R2(config)#interface serial 1/0
R2(config-if)#
R2(config-if)#ip address 192.168.12.2 255.255.255.0
R2(config-if)#
R2(config-if)#no shutdown
R2(config-if)#exit
R2(config)#

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  Step 3 : Configure Loopback address

R1

R1#
R1#configure terminal
Enter configuration commands, one per line.  End with CNTL/Z.
R1(config)#
R1(config)#interface loopback 
R1(config-if)#ip address 1.1.1.1 255.255.255.0 
R1(config-if)#exit
R1(config)#
R2

R2(config)#      
R2(config)#interface loopback 0
R2(config-if)#
R2(config-if)#ip address 2.2.2.2 255.255.255.0
R2(config-if)#
R2(config-if)#no shutdown
R2(config-if)#exit
R2(config)# 
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 Step 4 : Check Protocol which is Cisco by default 

R1#show interfaces serial 1/0
Serial1/0 is up, line protocol is down
  Hardware is M4T
  Internet address is 192.168.12.1/24
  MTU 1500 bytes, BW 1544 Kbit/sec, DLY 20000 usec,
     reliability 255/255, txload 1/255, rxload 1/255
  Encapsulation HDLC, crc 16, loopback not set
  Keepalive set (10 sec)
  Restart-Delay is 0 secs
  CRC checking enabled
  Last input never, output 00:00:00, output hang never
  Last clearing of "show interface" counters never
  Input queue: 0/75/0/0 (size/max/drops/flushes); Total output drops: 0
  Queueing strategy: weighted fair
  Output queue: 0/1000/64/0 (size/max total/threshold/drops)
     Conversations  0/1/256 (active/max active/max total)
     Reserved Conversations 0/0 (allocated/max allocated)
     Available Bandwidth 1158 kilobits/sec
  5 minute input rate 0 bits/sec, 0 packets/sec
  5 minute output rate 0 bits/sec, 0 packets/sec
     0 packets input, 0 bytes, 0 no buffer
     Received 0 broadcasts, 0 runts, 0 giants, 0 throttles
     0 input errors, 0 CRC, 0 frame, 0 overrun, 0 ignored, 0 abort
     10 packets output, 1127 bytes, 0 underruns
 --More--  


 You can see by default Encapsulation HDLC take by Cisco Router..