The iPhone 3GS is identical to the iPhone 3G in terms of size and appearance. It weighs a little more (one ounce), but that is nothing major. If you put the two phones side by side you would not be able to tell them apart while in sleep mode. However, once you wake the phones up you do begin to see the difference. The new iPhone 3GS has a screen that looks crisper; the images seem sharper and the display a little more vivid. This is mostly due to the increased graphics power brought on by the PowerVR SGX Graphics chip, which has support for OpenGL ES 2.0.
The PowerVR SGX is not the only new thing under the hood, though; Apple has thrown in a faster CPU running at 600MHz Vs the old 3G speed of 412MHz, while the memory in the phone has been doubled (256MB vs 128MB).
The additional speed, memory and graphics processing means more complex applications, faster video response and of course better gaming.
On the OS side of the house Apple has made some nice improvements. They have added in voice control, Multi-Media Messaging, tethering, a digital compass, improved video support, improved security, cut, copy and paste, video recording, geo-tagging (for photographs) and of course a landscape keyboard for texting and e-mail to list a few. But these are mostly surface additions; Apple has also fixed about 45 security issues with the iPhone OS that have been an ongoing concern.
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