I remember someone, maybe Butler's Rangers saying which case method was used on Krag parts. I maybe all wet but I think it was said that cyanide was used.
No possible ill effects for the end user since the parts were quenched in water and the krags have been cleaned a million times since they were made. For those doing the actual work precautions would have been necessary.
Here is a quote from Wikipedia
"Cyaniding[edit]

Cyaniding is a case-hardening process that is fast and efficient; it is mainly used on low-carbon steels. The part is heated to 871-954 °C (1600-1750 °F) in a bath of sodium cyanide and then is quenched and rinsed, in water or oil, to remove any residual cyanide.
2NaCN + O2 → 2NaCNO2NaCNO + O2 → Na2CO3 +CO + N22CO → CO2 + C
This process produces a thin, hard shell (between 0.25 - 0.75 mm, 0.01 and 0.03 inches) that is harder than the one produced by carburizing, and can be completed in 20 to 30 minutes compared to several hours so the parts have less opportunity to become distorted. It is typically used on small parts such as bolts, nuts, screws and small gears. The major drawback of cyaniding is that cyanide salts are poisonous."

Please note the case is very thin, so on a Krag with low alloy steel under the case little strength is there. You do too much polishing when bluing and you really hurt the strength and wear resistance of the steel.
As to who did it and how. I would like to see documentation and drawings or photos of the whole process of building a Krag. The setups and machining processes involved in making the Krag are hard to envision. The heat treating and stock making would have been a wonderful processes to observe also.  I think some of the later guns have some documentation on the processes in manufacturing, but I have seen nothing on Krags.