I don't think updating Moodle will help because I think it's a server configuration issue.
You could try uploading a small file, less than 1MB, and seeing if that works. The Nginx client_max_body_size limit is 1MB by default so if uploading a smaller file worked that would suggest this is indeed the cause.
If uploading a <1MB file does not work then it suggests another cause. But since it's Nginx sending the error it would really help if you could find the Nginx logs (access logs and error logs) and see if anything is being reported when this problem occurs.