If it’s via URL then you are not uploading anything so that shouldn’t fail with an upload error. If you are seeing that error with a URL please report that because that’s a bug.

That being said because this is a 500 it’s hard to tell what the issue is. I have found that the Lemmy servers are picky with images and will fail for some reasons such as:

• image format is not supported (eg. trying to upload a heif image)
• image resolution not supported (either the width or height of your image is too large)

As a potential workaround you can try upload images to imgur. To enable this go to Settings > Misc > Use Imgur.