It is the most famous smithing scene of the North: two dwarf brothers, a wager on Loki’s head, and a fly that stings at the bellows. Out of this contest came the three mightiest treasures of the gods – Thor’s hammer among them.
Sindri (also called Eitri) and his brother Brokkr are master dwarves. When Loki overconfidently claimed that no one could surpass the works of the sons of Ívaldi, he wagered his own head with the two brothers. And they took the bet.
Sindri laid gold, pigskin and iron into the fire one after another, spoke his spells and left the forge – while Brokkr had to work the bellows without pause, never stopping. But Loki, who feared the wager, turned himself into a fly and tried to disturb Brokkr: he stung him on the hand, the neck and finally on the eyelid, so that blood darkened his sight.
Even so, three masterpieces succeeded: the gold-bristled boar Gullinborsti for Freyr, which shines and runs faster than any horse; the ring Draupnir for Odin, from which every ninth night eight rings of equal gold drip; and the hammer Mjöllnir for Thor. Because Loki’s last sting struck Brokkr at the decisive moment, only the haft of the hammer turned out a little too short – the one flaw of the mightiest treasure in the world.
“Then the fly stung him in the eye,
and blood dripped onto the work –
yet the hammer was forged all the same.”
— image after Snorri’s Skáldskaparmál (sense after Karl Simrock, 1851, public domain)
Sindri (also Eitri) and Brokkr are two dwarf brothers of Norse mythology – smiths of such art that from their workshop comes the most famous object of the north: Thor's hammer Mjölnir.
When Loki had talked three treasures out of the sons of Ivaldi, he boasted that no dwarf could forge better. Brokkr took the wager – for Loki's head. Sindri laid the work in the forge, Brokkr held the bellows.
Loki turned into a fly and stung Brokkr to disturb the work. During the Mjölnir he stung him on the eyelid – that is why the handle of the hammer turned out a little short. Even so Mjölnir was the most valuable of all treasures.
The gods judged Mjölnir the winner – Loki had forfeited his head. Because the head could not be taken without the neck, he narrowly escaped. As punishment, however, Brokkr sewed his mouth shut. A story of craft, cunning and hubris.
The gods declared Mjöllnir the most valuable of all treasures – for it would protect Asgard against the giants. Loki had lost the wager; his head belonged to Brokkr. Yet with a quibble he escaped: the head, he said, was indeed wagered, but not the neck – and without the neck the head could not be taken off. Brokkr was left only to sew Loki’s lips shut, so that he might be silent for a while. So the story ends, as so often, with Loki’s cunning – and with the hammer that from then on protects the world of the gods.

Ívaldi & his sons · The dwarves · The treasures of the gods · Mjöllnir · Draupnir · Loki.
Snorri Sturluson, Prose Edda (Skáldskaparmál: Sindri/Eitri, Brokkr, the contest, the three treasures), c. 1220. English public domain: Henry Adams Bellows (1923). Scholarship: Rudolf Simek, Dictionary of Northern Mythology; John Lindow, Norse Mythology (2001).
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