Durin's Bane appears very briefly in the seventh episode of The Rings of Power Season One, when Durin III lets a leaf given him by the Elves fall into a deep abyss newly discovered in the search for mithril. The leaf seems to awaken the Balrog, who roars ferociously.
The Balrog killed Durin VI, the Dwarf-King of Khazad-dûm, whereafter it was called Durin's Bane by the Dwarves. Avarice, principally for mithril, drove the dwarves to go too deep and awaken the Balrog. The Dwarves attempted to fight the Balrog, but its power was far too great for them.
For more than five millennia, the Balrog hibernated in his deep hiding place at the roots of the mountains in Khazad-dûm. He remained undisturbed throughout the Second Age and most of the Third, before the mithril-miners of dwarf-King Durin VI awoke him in T.A. 1980.
This leaf floated gently down through hundreds of feet of rock and Mithril to land ever so daintily next to the Balrog. This is all it took to wake the creature that had been sleeping for thousands of years.
In TA 1980, the Balrog who fled the War of Wrath awoke beneath Khazad-dûm, roused by the Dwarves' mining for mithril or "by the malice of Sauron". It drove the Dwarves out of their home and slew the king at the time, Durin VI; this Balrog was thereafter called "Durin's Bane".
Gandalf's main reason for supporting Thorin's quest in The Hobbit was to eliminate the threat of the dragon Smaug, who would be a powerful ally for Sauron. Despite popular belief, the Balrog known as Durin's Bane was more powerful than Smaug in Middle-earth, being a literal, primordial demon.
Sauron was originally Mairon and was a Maiar associated with Aule who valued crafting above all else. Secondly, Balrogs were the epitome of malice and power while Sauron only ever won one of three fights he ever had. Sauron was the great deceiver. His power lies in planning, subterfuge, manipulation, and corruption.
In the end Tolkien stated that there were probably "at most" seven Balrogs: In the margin my father wrote: 'There should not be supposed more than say 3 or at most 7 ever existed. '
Beginning under the Silvertine, the Dwarves mined ever deeper, and down towards the roots of Mount Caradhras. There they unearthed the Balrog, which drove the Dwarves into exile.
The fear of Elves is more spiritual, so the demonic creatures of shadow and flame are unsurprisingly horrifying to them. Legolas doesn't appear to have any hesitation in his actions throughout the films, but it's clear that his blood runs cold when a Balrog appears in the Mines of Moria.
So, when Gandalf agreed with Frodo's decision to travel through Moria, he knew that something could be hiding there. Yet, he had no reason to think that it would be something as awful and powerful as a Balrog. Only King Dain Ironfoot knew that Durin's Bane was a Balrog.
But I think you answered your own question. Gandalf doesn't know what it is until he sees it out in the open, as Legolas does as well. He recognized what it is as well as the elf, by sight, but is unable to recognize it just by confronting its power with his own.
The name “Durin's Bane” literally means “that which destroyed Durin”, so it's fairly certain that the name referred only to the balrog in Moria. The dwarves didn't know what it was, since none of them had ever actually seen it. They just knew something they had never encountered before had killed Durin.
There is no account of any dwarf ever killing a Balrog, let alone multiple. The only recorded instances of Balrogs having been slain are Gandalf's slay of Durin's Bane, Echtelion's slay of Gothmog and Glorfindel's slay of an unnamed Balrog.
It's worth noting that Sauron wasn't a Balrog. His appearance was dark and wreathed in fire, but he wasn't physically the same as a Balrog. On a surface level, it's a bit of a plot hole. After all, Sauron and the Balrogs were both Maiar, and they both served Morgoth's evils during the First Age.
Gimli didn't know about Moria's fate because there had been no communication between Erebor and Moria for 25 years, and the Dwarves were hopeful and did not want to accept failure until there was certain news.
Gothmog, one of the first Balrogs to become Morgoth's allies in the First Age, is regarded as the most powerful Balrog in Middle-earth. As the High Captain of Angband, he is given the title 'Lord of Balrogs'. Although he carries a fiery whip to battle just like the rest, he is also renowned for having a large black ax.
If the Balrogs are corrupted Maiar, then would Saruman eventually become one? Saruman wouldn't become a Balrog, because his nature is inherently different and he's kind of stuck in the body he's in.
Although both the Balrog and Smaug are creatures of fire, and Gandalf is able to match them thanks to the power of his fire ring, defeating the Balrog takes far more spiritual prowess, which is why Gandalf is able to essentially 'level up' and comes back as Gandalf the White, whereas defeating such an immense physical ...
As a Valar, Morgoth led a whole slew of Balrogs in the First Age, but because Sauron was only a Maia, the Balrog would have had no loyalty to him. He was his own master in Moria, and no Dark Lord was going to ruin that.
