There's almost no difference between the two. Both are likely to cause HUGE issues. Updating that much data using a cursor AND through individual INSERT & UPDATE statements is going to be a giant transaction. You'll need to have a very large log file. You'll also probably need a much larger tempdb. Plus, you're going to have a very large number of locks inside your database leading to massive blocking of other processes.

In general, this is a very poor choice. The requirements may say this, but this is where you, as the technical resource, push back against the requirements in order to arrive a technically supportable solution.