They also had the option of scanning the separation masters, which are pretty much pristine and don’t fade at all, but that’s more work/time/money and apparently the negatives were still salvageable.
They did scan the Separation Masters. And used them as a primary reference for color and fade correction.
They probably scanned the three separation masters in 4K since they were only interested in the color, planning to combine them later and use them as a reference for grading the OCN. But if they did that with the three masters, I think it would have been faster to scan the three separation masters in 8K, combine them, clean them up a bit, and release it. The separation masters together are a literal, identical copy of the OCN, without the extra grain, since they are black and white copies with finer grain, inked with ink. But all in all, what they are doing is incredible: restoring the original from the degraded OCN to the digital realm, this time in good condition, using miraculous techniques, effort, a large budget, and the most modern and refined techniques since the concept of a “digital master” existed for those restorations of classics. We’ve seen The Wizard of Oz, Lawrence of Arabia, and Blade Runner restored for preservation, respecting their legacy, and now it’s Star Wars’ turn.
But even still, they’re second-generation. Right?
That is to say, yes, but you don’t notice it. Being black and white films, their grain is finer than that of a 1970s color film. In fact, when YCM Labs made their corrected IP, which was used as the master for the 97SE, ultra-fine grain color films already existed. Therefore, in 2004 they wouldn’t have needed to use OCN to restore it so poorly in digital, since they had a perfect print, a literal copy of the negative without necessarily worse quality for being second generation, and with the SE additions and changes that George liked so much.