Prologue: A Short History of Dwarves
Time began when the Elves awoke from a vast, ever spanning darkness. Six nameless and one named Dwarf Fathers awoke from Aule, and a race was brewed in secret under the mountains, soon after; the one named being Durin I, The Deathless. Each one of these seven became Kings, and made their own great halls. Three holds were built in the first age, one Belegost, and the second, Nogrod, were built in the Blue Mountains. But Durin I made his hold in the Misty Mountains, which he called Azanulbizar. In this first age the Dwarves and Elves formed alliances and had much trade. Dwarves from Belegost made fine steel, and constructed the hall of Thingol, Menegroth. Dwarves fought alongside Elves and Men, in some major battles of the age, including the first battle of Beleriand, and the Nirnaeth Arnoediad (Battle of Unnumbered Tears). In the battle of Nirnaeth Arnoediad it was the Dwarves of Belegost that won and were known for being the only one able to stand against the dragon Glaurung. The Dwarves of Nogrod were known for their craftsmanship of weapons. Most notable was the smith Telchar. Dwarves from Nogrod crafted the necklace Nauglamir and Thingol requested smiths from Nogrod to insert a Silmaril into the necklace. Thus, the works of Elves and Dwarves were united. But, the Dwarf-Smiths were driven mad by gold lust and stole the necklace and murdered Thingol. The Elves of Doriath pursued the smiths to their deaths and reclaimed the necklace. The Dwarves of Nogrod invaded Doriath.
It is said that the coming of Durin VII would mark the end of the dwarves. Durin II was born in the second age, and Durin III was his son. He was gifted with the seventh, and most powerful Dwarven Rings of Power. But since it was the Elven smith Celebrimbor that gave him this and not Lord Souron, it did not have the same effects as the other rings Souron had casted. With this knowledge, Souron wished to capture the rings back, but he did not do so until Thrain II ruled.
It was in the time of Durin VI that the Dwarves were beginning to dwindle. They were deepening their mithril mines and came upon Balrog of Margoth. Durin VI was slain by this Balrog, and so was his son a year later, Nain I. There Durin's line ended, so the last fled Khazad-dum.
Most of Durin's people went to the Grey Mountains, and they built new halls. But, Thror's son, Thrian I, now king, went to the Lonely Mountain, and founded the kingdom of Erebor. It was there, at the heart of that mountain, that he found his most precious jewel- the Arkenstone. Thrain's son, Thorin I chose to stay in the Grey Mountains, and it became the seat of kings. But, there they were attacked by the cold-drakes of the north. Dain I was slain by them and his son Fror, but his eldest son Thror fled to the lonely mountain.
For 200 years the wealth of the lonely mountain became more and more. This stopped with the emerging of the great fire-drake Smaug the golden. Thror escaped with his family, but most of the dwarves there died, and his wealth was gone. Later, Thror gave his son Thrain II the Ring of Power, and was slain by the Orc King Azog. This started a war between the Dwarves and Orcs. It ended in the battle of Azanulbizar, when Dain Ironfoot killed Azog. The Ring of Power started to poison Thrain II's heart with greed, and he set out alone to reclaim Erebor. He was captured by Sauron, and died in the dungeons of Dol Guldur.
Thorin Oakensheild, son of Thrain II, with twelve other dwarves and a hobbit named Bilbo Baggins reclaimed Erebor. Dain Ironfoot became king at Lonely Mountain after that. For a time, they enjoyed trade with the Elves of Mirkwood and the Men of Dale. Later, Balin ( a companion of Thorin's) quested with a few dwarves to reclaim Khazad-dum. Five years they fought the Balrog and armies of Orcs. Balin was killed by an Orc arrow, and the rest were killed at the bridge of Khazad-dum and the east gate.
There have been several battles sense, many victories, many defeats.