  I review radiative processes responsible for X-ray emission in the hard (low)
and soft (high) spectral states of black-hole binaries. The main process in the
hard state appears to be thermal Comptonization (in a hot plasma) of blackbody
photons emitted by a cold disk. This is supported by correlations between the
spectral index, the strength of Compton reflection, and the peak frequencies in
the power density spectrum, as well as by the frequency-dependence of
Fourier-resolved spectra. Spectral variability may then be driven by the
variable truncation radius of the disk. The soft state appears to correspond to
the smallest truncation radii. However, the lack of high-energy cutoffs
observed in the soft state implies that its main radiative process is Compton
scattering of disk photons by non-thermal electrons. The bulk-motion
Componization model for the soft state is shown to be ruled out by the data.
