There are a plethora of evolution items in Pokemon GO, each with their own specific Pokemon they are capable of evolving, and this is no different for the Up-Grade item.
Introduced in Generation II Pokemon games (Pokemon Silver, Gold, and Crystal), the Up-Grade item has existed for years in Pokemon GO and was introduced alongside its many Johto region counterparts.
Much like many of these counterparts, the Up-Grade item can be found from spinning a Pokestop's photo disc or offered as a reward during special events, particularly those centered around evolution. Lastly, there is the chance that trainers can earn an Up-Grade from other trainers' gifts.
Pokemon GO: What Pokemon evolves via Up-Grade?
At the moment, the only Pokemon in Pokemon GO that can evolve from the use of the Up-Grade item is Porygon, the Generation I Pokemon known in the Pokedex as the Virtual Pokemon.
By providing Porygon 25 candies and the Up-Grade item, Porygon can evolve into Porygon2. There is also a third evolutionary stage in the evolution line known as Porygon-Z, but this Pokemon requires 100 candies and the use of a Sinnoh Stone. This evolution item is earned from things like Research Breakthroughs or trainer battles.
Up-Grade (renamed Upgrade after Pokemon Sword and Shield) traces its lore roots back to Silph Co., a large corporation featured in many Pokemon games (beginning in Generation I) that primarily develops new technologies.
Within the universe of Pokemon, they are also responsible for creating everyday items that players can also find in Pokemon GO, such as Pokeballs, Potions, Revives, and Rare Candies.
Though Silph Co. has yet to make its presence known in earnest in Pokemon GO, Niantic is always adding more Pokemon lore (Team GO Rocket, for example) to the game, and the enigmatic company may be featured in the future.
With regards to Up-Grade specifically, Pokemon GO trainers will need to have reached trainer level 10 before having access to it. Spinning the photo disc before reaching this milestone will provide no chance for Up-Grade to drop from spinning a Pokestop.
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This is purported to apply to trainer gifts as well. If players can keep up their streak of spinning Pokestops every day, they can obtain a guaranteed evolution item after reaching a seven-day spin streak. There's no guarantee that the item will be an Up-Grade, but it's certainly worth shooting for trainers who are aiming to evolve their Porygon.