I've known several people who have wintered comfortably in Tipis up in the Canadian Rockies and in the Yukon. What they did for insulation was either loose
straw up against the Tipi for 5 feet with plastic over it to keep the straw dry, or spruce/fir boughs heaped up against it, with tarps keeping the wind out of the boughs. A floor of
pallets is handy, but not necessary, according to them. Both of these tipis had a tarped off entrance way/mudroom/fire wood storage area. Both burned far less wood in the stove than most homes because the stove is central and the space is small.
I see few reasons why you
should not try your design, besides the labor of digging the pit. Obviously there will be potential issues of airflow for the fire, and the moisture issues which can be dealt with as mentioned above....
............The other concern that I need to mention is that combustion gasses (poisonous) tend to sink into low areas and collect, and kill people. Keep your sleeping area higher than the low pool area, like the Inuit do with their sleeping platforms in their igloos.
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