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Boil potatoes 10-15 minutes. Drain while making sauce.
Fry bacon until crisp, drain and crumble. Set aside.
Fry onion until slightly done in bacon grease.
Add water, vinegar, sugar and salt. Bring to a boil, turn down heat and add ¼ cup cornstarch dissolved in a small amount of water.(this will thicken the sauce -- a must!).
Add the butter and stir until melted.
Peel and slice warm potatoes and add to sauce.
Stir in bacon. Salt and pepper to taste.