Apologies if some of this has been said before, but I wasn't able to find too much on this topic here on the forum. This suggestion mainly concerns expanding the smelting/metalworking system.
As you know, steel is in large part made of iron. However, iron is not the only thing in steel; it is an alloy of ferrous iron plus various additives like carbon (increases hardness, reduces toughness), chromium (for stainless steel), nickel (helps with corrosion resistance and increases toughness), and more. Steel actually requires significantly less iron than pure iron tools, often as much as 20% less.
Obviously then the current system wherein "steel" is just more iron piled on top is a bit unrealistic, although makes the gameplay mechanics simpler.
I propose that a better solution for steel tools would be to add steel (and possibly other alloys, discussed later) as entire new materials, with their own ingots, plates, and rods; these alloys would be obtained through a blast furnace or similar, made with the tier II workbench, which would function by melting ingots or ores placed in an upper tray and depositing them as alloyed ingots in a lower tray. Steel could be as simple as coal and iron or could include new materials like chromium, depending on the balance you want between realism and simplicity. This would give a use to coal outside of just being a fuel source as well.
Having a new crafting station just for the production of steel would be a bit redundant, so other alloys like bronze, brass, etc. could be introduced to add more opportunities for decorative items and crafting resources (think brass door handles, chains, gears, bronze springs & statues).
Now we reach the part where mithril factors into all of this: rather than having it be yet another upgrade from the previous material (which gets quite boring after a while), mithril could be used to augment alloys with fantastical properties, e.g. mithril-aluminium could be magically lightweight, allowing for the creation of armor that has less base defense but greatly reduces fall damage; mithril-copper could be a room temperature superconductor, opening the gate to sci-fi stuff like coilguns and fancy energy sources; mithril-steel could be the hardest material imaginable, allowing for bullets that penetrate walls and can hit multiple enemies in a row.
These ideas don't all come as a package deal, it's fine if you want to consider some and not others if any of them seem too far-fetched for rising world. I just like the realistic direction the game takes with crafting and production, and thought I might try to expand on it.
I agree that the current mechanic is indeed unrealistic, but it was originally meant to be just a placeholder 
Unfortunately steel or other alloys never made it into the Java version... however, for the new version, we actually have plans for various alloys (including steel). We've prepared a new crafting station for that in the past, but unfortunately it's not in the new version yet... we'll hopefully introduce it after the NPC update. Steel, for example, would then indeed be created by combining iron and coal^^
Maybe this would be a good reason to reintroduce mithril (at least once alloys are in the game)... we'll definitely keep that in mind!
