Imgur's community was in revolt

Which begs the question: What the hell was reddit doing that they didn't immediately implement an image hosting feature to keep users on the platform? Imgur rose to fame because it was the darling image host of reddit users, and it wasn't long before imgur needed to pay hosting costs and started sucking users away from reddit and into their own "imgurian" sharing hub.

I guess the internet back then was still in the "Open effort to make the internet awesome for everyone" phase, and hadn't yet gotten to the adversarial "Capture users and never let them leave" phase.

That quickly flipped, as /r/NSFW became the most popular subreddit. You could avoid it by browsing as a guest or by curating your feed, but porn was everywhere.

Early Reddit also had a strong attitude about minimal moderation. The early days were characterized by a feeling that anything goes as long as it wasn’t illegal or too extreme to defend. Combined with the popularity of porn on the website it created strange situations where a lot of subreddits were focused on things like legal-enough photos of underage children. There were also a lot of weird alt-right and white supremacist forums. There was an unofficial (if I recall correctly) “Subreddit of the Day” that attracted controversy because it actually highlighted one of the “jailbait” subreddits and even a white supremacist subreddit.

So if you were there at the time, it was obvious why Reddit wasn’t going to host their own images: It would have been a legal nightmare with all of the porn (copyrighted material), the creepy underage stuff, and white supremacist memes

Reddit did a decent job of containing this stuff out of view of the average user and later removing it from the site. It took many years.

If you peeked at /r/all or browsed new during the early days it would have been clear why image hosting would have been out of the question at the time.