In Chapter 3, the elves of Rivendell greet the adventuring party with a song that purports to ask what they are up to, but that also names Bilbo and some of the dwarves before they have introduced themselves. Tolkien uses a simile as he reflects on the dramatic irony that always seems to surround elves:
Tired as he was, Bilbo would have liked to stay a while[...]. [H]e would have liked to have a few private words with these people that seemed to know his names and all about him, although he had never seen them before. He thought their opinion of his adventure might be interesting. Elves know a lot and are wondrous folk for news, and know what is going on among the peoples of the land, as quick as water flows, or quicker.
Gandalf has already told Bilbo and the dwarves that he sent a message ahead to the elves so that they will expect visitors. It is not altogether surprising, then, that they know the names of some of their guests. Still, Bilbo gets the sense that these strangers know "all about him, although he had never seen them before." Tolkien confirms that elves as a whole get their news almost impossibly fast, "as quick as water flows, or quicker." The internet has changed the way news travels; long before and after Tolkien's day, the spread of news was always somewhat halting. Even when a messenger raced with a piece of news to the next recipient, the news stopped spreading for a moment as it was relayed from mouth to ear or as the recipient read it. Newspapers took longer to reach rural areas than urban areas because they had to be carried there by some kind of vehicle with limited speed. One of Tolkien's major influences was Sir Walter Scott, a popular 19th-century novelist whose characters are frequently tripped up by the slow spread of news and information through the country. By comparing the elves' news to flowing water, Tolkien suggests that the elves have a magical way of overcoming all the infrastructural obstacles to getting the news in their remote valley.
The elves' mysterious way of knowing more than they should reverses the dramatic irony that typically comes into play in this kind of situation. Most often, a traveler passing through a rural settlement like Rivendell would bring tidings of the rest of the world. In other words, the traveler would know more than the host. In this case, Bilbo gets the sense that there is almost nothing he can tell the elves that they don't already know. In fact, the elves seem to know even more than they let on, and Bilbo knows neither what they know nor how. They have an air of mystery and magic about them that puts Bilbo in awe of them.
Tolkien has been fairly criticized for creating races with essential, unwavering qualities, such as the elves' all-knowing nature. While this moment certainly reinforces a strong distinction between the elves and the other races of people in the novel, it also sets Bilbo up for character growth. He is amazed by the elves' music and in awe of their cleverness. He wants to know what they think of his adventure. By the end of the novel, he has demonstrated that a hobbit can write his own songs about his adventure. He has also proven that he is a cleverer person than he ever thought he could be. Tolkien's racial distinctions thus exist in part to give characters the chance to challenge them.
Bilbo finds immense power in the discovery that he can put on Gollum's ring and become invisible, creating dramatic irony whenever he needs it. In Chapter 18, when Bilbo wakes up on the battlefield, he finds that his weaponized dramatic irony has given rise to a situation that is ironic in its own right:
Suddenly he was aware of a man climbing up and coming towards him. “Hullo there!” he called with a shaky voice.
“Hullo there! What news?”
“What voice is it that speaks among the stones?” said the man halting and peering about him not far from where Bilbo sat.
Then Bilbo remembered his ring! “Well I’m blessed!” said he. “This invisibility has its drawbacks after all. Otherwise I suppose I might have spent a warm and comfortable night in bed!”
Bilbo survives the Battle of the Five Armies by putting on the ring. Because no one can see him, he is able to survive a battle that far more experienced warriors (including Thorin) do not. This is a tried-and-true trick of Bilbo's by this point. The ring has helped him get past Gollum, goblins, spiders, and more. Meanwhile, it has also helped him convince the dwarves that he is a more skilled burglar than he actually is. Clueless to his secret ring of invisibility, they begin trusting him to carry out more subterfuge. This opportunity allows him to develop his burglary skills in earnest.
However, Bilbo realizes in this passage that the invisibility may have, ironically, backfired on him. He was invisible when he was knocked out on the battlefield, so none of his friends knew he was there. The dramatic irony still empowers him somewhat: he is in a good position to play a prank on the man who finds him by speaking in a disembodied voice. Nonetheless, Bilbo feels that the joke may be on him. Because no one could find him to carry him to safety, he has missed out on a comfortable sleep. The ring may have saved him, but it also made the battle more strenuous on his body than it needed to be. It may in fact have endangered him since even an ally could have killed him by accident while he was lying out in the open.
While Bilbo is amused by this irony, it also marks significant character growth. Where he once relied on the ring to compensate for his lack of survival skills, he now sees that there are times when he may not need the ring at all. He shifts to the understanding that it is one tool in his full arsenal of survival tactics. At long last, he understands that he has power all his own.