Disclaimer: I'm by no means an expert at this.
The trick was to use the bark while it was still fresh off the tree. If you let it dry out it will be harder to work with, although I think you can steam it to get it back to its supple condition.
You don't stitch a birch sheath together with anything, it's more like a weaving. I was hoping there would be a description of it in Kochanski's book, but there doesn't seem to be, so I'll describe the technique as best I can by looking at the sheath I made. I don't think there is only one way to do it, either; if it works and you like the design, then it's good; otherwise you did it wrong <img src="/images/graemlins/wink.gif" alt="" />
1. Take a strip of bark about 4 times as long as the blade and wide enough to serve as the sheath. Fold the ends to the middle, then fold it in half again, so you have a fourfold thickness with an opening at one end. I'll refer to the "outer wall" and the "inner wall" and hope that it's clear what I mean.
2. Cut a long, thin strip of bark, about 1/3" to 1/2" thick. Push one end of it between the "outer" and "inner" wall on one side, almost all the way through. Wrap it around the sheath one turn, then push it through between the "outer" and "inner" wall on the opposite side from where you started.
3. Keep doing this until you have used the entire length of the thin strip; you will probably have to use more than one strip to complete the weaving.
4. You can add a belt loop to it - Mors showed us how but I didn't make one (which I should have) so I don't recall exactly how he did it. But I don't think it's rocket science. Once you've made the sheath, you should be able to think of a couple of ways to design a belt loop for it.
The knife will be held inside the sheath by the friction of the two opposite sides squeezing on it. Even on mine, which is a beginner's attempt, if I pick it up by the sheath and hold it with the knife handle downwards, I can shake it up and down without the knife falling out.
(The smooth inner bark should form both the inside and outside of the sheath; the "paper" side is what grips the weaving strips and prevents them from coming loose.)
I hope this helps.
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"The mind is not a vessel to be filled but a fire to be kindled."
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