WP 8.1: Update or Upgrade?

Since the initial rumors, Windows Phone 8.1 has confused me. Even when it was referred to as "Windows Blue" and "Windows Phone Blue," it's puzzled me at least a little. Everything from the RT merge to the backgrounds behind the tiles-- it's all seemed a bit fuzzy to me. Now, some things are becoming more clear, but to me there is still one lurking mystery: will 8.1 be an update (similar to PC), or a full fledged upgrade like WP7 to WP8? I know the WP8 was a total ground-up move, but will WP8.1 be similar? Will our WP8 devices be able to be updated to 8.1, or will we have to buy hardware with the latest software?