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Ice houses were indispensable before refrigeration. I have friends that own an old one, as you mention dug into the side of a hill. I believe theirs was used to sell ice locally as the building is fairly large. Oddly the water nearby rarely freezes with ice thick enough to cut, at least not without something to stand on that floats. Saw dust was widely used as insulation for ice. I think mostly because it is relatively clean and free of contaminants.