I just wanted to add, in the official lemmy documentation they say to use a third party as well, not the instance itself.
https://join-lemmy.org/docs/users/02-media.html?highlight=images#images-and-video
Note that this functionality is not meant to share large images or videos, because that would require too many server resources. Instead, upload them on another platform like PeerTube or Pixelfed, and share the link on Lemmy.
This also served as a good reminder to look into disabling image uploads on my instance. I can't afford a massive server for it to host other peoples images which is both size and resource intensive.
That's 99% of what gets posted to medium.com