Yes, it explains the basic concept.
Any programmer can extend this algorithm:
1. When the current byte finished encoding, continue to encode the next byte.
I don't understand what that means. Can you explain how exactly you propose to change the consensus rules?
Why would a miner spend 256 more effort to get the last 8 bits correct, when they can instead just focus on the initial zeros, and once satisfying those, pretend that whatever the final 8 bits encode is what needed to be stored?
2. When a new block was found and broadcasted, mine/encode based on the latest block.
3. Adjust the encoding difficulty, you can choose 1 byte or 2 bytes to encode, or any bits less than the hash output bits width. (for sha256, 256bits max. however, you wont choose too difficult setting.)
Even at minimal encoding difficulty, you can store at most 32 bytes per block.