You can jailbreak your iPhone 4 running iOS 4.2.1 with greenp0ison (by following this guide) but updating to iOS 4.2.1 can upgrade your baseband that can end making your iPhone 4 unlockable if it’s not factory unlocked. There is a way to update iPhone 4 to iOS 4.2.1 while avoiding the baseband upgrade. To do this, you can follow our guide to update iPhone 4 to iOS 4.2.1 without upgrading the 1.59.00 baseband. A jailbroken iPhone 4 updated to iOS 4.2.1 without updated baseband can be unlocked with Ultrasn0w. Here is the step by step guide to do it:

How to unlock

1. Jailbreak your iPhone 4 running iOS 4.2.1 with greenp0ison by following this guide. Make sure that you upgrade to iOS 4.2.1 without updating the baseband. To do this follow this guide first.
2. Run Cydia on your jailbroken iPhone 4.
3. Tap ‘manage’ at the bottom of the screen and then ‘click Sources’
4. Tap the ‘edit’ button at the top right of the screen and then tap ‘Add’ button on the top left of screen.
5. Enter http://repo666.ultrasn0w.com as the source of URL and tap ‘Add Source’ button.
6. When your done with adding source, tap ‘Return to Cydia’ button and press the ‘Done’ button at the top right of the screen.
7. Select http://repo666.ultrasn0w.com/ from the list of user entered sources and select ultrasn0w from the list of Packages.
8. Tap ‘Install’ button at the top right of screen and then tap ‘Confirm’ to start the installation.
9. When installations completes successfully, restart your iPhone.
10. After reboot, hold the ‘home’ button and power off the iPhone and then turn it on again while you hold the ‘home’ button.
11. Done, you can now enjoy your unlocked iPhone 4 running iOS 4.2.1.