In a large Dutch oven or heavy-bottomed pot, cook the diced bacon over medium heat until crispy. Using a slotted spoon, remove the bacon bits and set aside on a paper towel-lined plate. Leave about 2 tablespoons of bacon fat in the pot, discarding any excess.

Add the unsalted butter to the pot with the bacon fat (if using). Once melted, add the diced yellow onion and cook until softened and translucent, about 5-7 minutes. Add the minced garlic and cook for another minute until fragrant.

Sprinkle the all-purpose flour over the cooked onions and garlic. Whisk continuously for 1-2 minutes to create a roux, cooking out the raw flour taste.

Gradually whisk in the chicken broth, then the whole milk, ensuring no lumps form. Bring the mixture to a gentle simmer, stirring frequently. Add the diced Russet potatoes, salt, black pepper, and dried thyme.

Reduce the heat to low, cover the pot, and simmer for 15-20 minutes, or until the potatoes are very tender when pierced with a fork. Stir occasionally to prevent sticking.

Once the potatoes are tender, remove about 1-2 cups of the potato mixture and mash them separately, or use a potato masher directly in the pot to mash about half of the potatoes. This will thicken the soup and create a creamier texture while leaving some chunks for body. Do not over-mash if you prefer some potato chunks.

Stir in the sour cream and 1 cup of shredded cheddar cheese until melted and fully incorporated. Taste and adjust seasonings as needed. If the soup is too thick, add a little more milk or broth until desired consistency is reached.

Ladle the hot potato soup into bowls. Garnish generously with the reserved crispy bacon bits, extra shredded cheddar cheese, and fresh chopped chives. Serve immediately.