In a large dutch oven, add butter and melt over medium heat. When the butter is melted, add the diced onions and cook till translucent, about three minutes.
Add the ground beef and water to the onions. Using a meat chopping tool or similar, immediately start crushing the beef into tiny pieces. Don’t brown the beef; instead smash the raw beef up into the water until it forms a loose soup-like texture.
Add the remaining ingredients for the coney dog sauce and stir to combine. Reduce heat to low, and allow the sauce to simmer for 90 minutes, uncovered, or until it has cooked down to your desired texture.
For traditional Coney Island dogs, boil your hot dogs for five minutes as the chili is finishing up. Then, turn off the heat and cover to keep warm. Microwave your buns for 15 seconds to soften them up. Add a hot dog to each bun, and dress with chili, yellow mustard and remaining diced onions.
Alternate Step 4:Not traditional, but scoring and grilling the dogs is an excellent way to add some extra flavor.