Have had similar issues in the past. As I was working, my Macbook Pro (2017-mid with touchbar) heated up, about two weeks ago. Since it didn't feel right, rebooted it. Apparently, my MPB was updating in the background (at least, that's what I suspect, even though I always have auto installing off). During the reboot I got the same error message. Retrying or shutting down and starting up again didn't help.
When I has this issue before, last year, I managed to solve it by attaching an ethernet cable. Unfortunately, that didn't solve it this time. I was able to boot in safe mode, so I could at least back up my important files. Through safe mode I also installed the updates manually. This still led to the same error message. Resetting NVRAM also didn't help. Using Apple Diagnostics to check for hardware issues also didn't help me, since there were not issues found.
I then reinstalled my Big Sur installation from recovery mode (without erasing my disk), but still, the error message came up when booting. Then I erased/formatted/first aided my entire disk and tried to install Big Sur, but still the same issue. I've tried this many times, but one time it miraculously worked, I could start up my MPB in normal mode without any issues! I set my appearance preferences and was all set to continue working. But then I tried a simple reboot, and the issue came back again... But at least I could verify that my touchbar was working fine, since I was able to test it. I then knew for certain that my issue had nothing to do with any hardware issues as suggested by other people with the same error message.
I tried erasing my disk and reinstalling Big Sur multiple times after but with no luck anymore. I then safe booted, downloaded macOS Catalina and created a bootable installer on an external SSD I have. Booted by holding the option key and selected my bootable installer. It installed Catalina but eventually I got the same error message, I pressed retry and it somehow worked! I could boot normally in Catalina. First thing I did was installing all updates and upgrading to Big Sur again. This caused the issue to come back again... I then thought that it might be an issue with Big Sur, so I wanted to install Catalina back with the intention to not upgrade to Big Sur. After installing Catalina again using my bootable USB installer, I got the same error, but this time retry didn't help me. Again, I was stuck.
I retried formatting/erasing/first-aiding my disk and installing Catalina multiple times. Eventually, after a long, long time, after basically giving up, it somehow worked again. Catalina was installed and I could boot normally. But all my trust was gone.
Since I use my machine for work, I couldn't risk having to spend yet another entire week in resolving this vague (software!) issue. That's why I chose not to touch it again and to get a 2019 16" MBP with a discount by trading in my 2017 model. This was an extremely sour decision I had to make — a not even 4-year-old machine that cost me almost 3000 euro should NOT break like this. I even had it insured for three years, it had zero scratches, no hardware issues and I was expecting to use it for many many years. My Apple retailer even gave it the highest taxation value possible, which almost never happens they say.
In the end, I suspect that something went wrong during the first update attempt that also somehow affected the base volume. The base volume was the one volume I couldn't erase or format. I did perform first-aid on it, but that didn't resolve anything. But then again, out of my 30-40 re-installation attempts it worked 3 times, after 2 of those it crashed again, the third time I just didn't touch it again and traded it in. It is very sad to see my MBP go because of a software issue. Other people have suggested to replace the motherboard or touchbar, but I had found that both worked fine. Apple machines aren't cheap, and most people buy it with the intention to use it for more than 4 years as a stable machine to be productive on. Hopefully Apple will help their customers, but the lack of adequate responses from Apple doesn't lead to a glimmer of hope.