When you say update, this means that you are modifying what you currently have with a new version that is more likely to be better than the first one. For example, when you have a phone, and you would need to update the software, this means that the software will be the same, but it will be a newer version of your previous.
When you say upgrade, this means that you are completely changing what you already have. For example, you would like to upgrade your smartphone. This means that you are going to completely change your smartphone model. Take note that when you upgrade, this also means that you are getting something that is better.
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