So you've updated Azure Functions to the latest version (2.X at the time of writing this), and nothing starts anymore.

Now, when you boot the Functions host, you get this weird error.

[TIMESTAMP] A host error has occurred
[TIMESTAMP] Microsoft.WindowsAzure.Storage: Server encountered an internal error. Please try again after some time.

There happen to be an issue opened on GitHub that relates to Durable Functions and Azure Storage Emulator.

The thing is, it's not directly related to Azure Durable Functions. It's related, in my opinion, in a breaking change that happened in Azure Storage Emulator 5.8 ways of responding from its API.

If you want to fix that issue, merge the following setting in your local.settings.json file.

{
  "Values": {
    "AzureWebJobsSecretStorageType": "files"
  }
}

This only applies when "AzureWebJobsStorage": "UseDevelopmentStorage=true".

So why should we set that? There was a change that was introduced back in September 2018 when Azure Functions V2 was released. Azure Functions store your secret on disk before 2.0. Azure Functions, when slot swapping environments, swap the content of the disk including the secrets.

What this setting does is ensure that Functions stores secrets on your file system by default. It's expected behavior when using a local development environment.

If you want to read more, there is an entire article on that behavior.

Conclusion

To fix the issue, you can either use the workaround or update the Azure Storage Emulator to 5.9.