Cut bacon into 1-inch pieces. Place in large frying pan and cook until ready to turn. Add butter and onion and cook till medium brown. Add cut cabbage and add bay leaf if using. Add enough water to cover (1/4 cup at a time).
Cover and allow to steam, stirring often, and adding water as needed to help loosen the brown bits in the pan. Cook 15 to 20 minutes (it will cook down quite a bit in volume). Taste to check for desired tenderness.
When almost done, add vinegar, stir, and heat an additional 5 minutes. Sprinkle with coarse black pepper just before serving if desired.