The purpose of the fire in the hole is to heat the ground as well as the nuts. Heating outside the hole and dropping into a cold hole [especially if ground is a little damp] will cause the nuts to cool too quickly.
To harden most steels, heat to a cherry red, then chill quickly in water or some other coolant. The result is very hard and very brittle. For most applications, tempering is accomplished by a second heating to achieve a color change in shiny steel. This removes a little of the hardness but removes most of the brittleness.
To anneal [soften] steel heat to a little beyond cherry red to a dull orange, hold for a short time is desirable, then slowly cool. Alternatives to the fire pit are external heating then bury in a bucket of dry sand. The sand will act like an insulator to retard the cooling rate. Do not use damp sand; it will conduct the heat away. Another alternative would be to use a bucket of wood ashes. Ashes make a good insulator. If using ashes, a good washing may be required to neutralize any "base/acid" activity.
The action of heating to a glowing state should remove cadmium or zinc dichromate finish. This is best done outside with plenty of ventilation because the fumes are toxic.
