So after visiting 50 sites, it has memorized 50 unique passwords.
Yep, or 50 unique passkeys if you prefer. And also 2FA codes if you want to store them there (cuz it’s a lot quicker than having to pull up your phone, and you don’t lose them when you upgrade your phone). However in that case it’s not really 2FA, which is traditionally “something you know and something you have”. It becomes “two things someone else knows, protected by one long password you know”. But it sure is a heckuva lot more convenient.
What happens if the program itself is hacked? Are all my accounts and passwords now exposed?
In theory, your passwords should be encrypted with your super secret master password such that nobody else (whether a hacker or the company itself) can access your data even if they were hacked and all their hard drives were stolen. In the case of 1password, your master password is further augmented by a secret key that together provide stronger protections. If you lose that, or if a hacker doesn’t have it, in theory all your stored passwords are inaccessible.
I say “in theory” because at the end of the day, you are choosing to trust this company with what they say to be true. Some password managers, like LastPass, do have a horrible history of security leaks and should not be trusted. But as far as I know, many others (like 1password or Bitwarden or the ones built into Apple & Google stuff) don’t have major known issues. Whether that makes them safer or more secretive is anyone’s guess.
In the special case of Bitwarden though, it’s supposed to be open-source, so if you’re technical enough, you could in theory self-host it on servers that you exclusively control, and audit all its source code (or pay a security company to do that audit) to get some peace of mind. Both 1password and Bitwarden have outsourced and done many audits, for what it’s worth: Security audits of 1Password and Compliance, Audits, and Certifications | Bitwarden Help Center
At the end of the day, there is always a tradeoff between convenience and security, and it’s up to you determine what balance you find acceptable. If you don’t have super secret national security stuff, honestly, a password manager (basically any except Lastpass) is more than enough security, and already much better than what most people use (weak, reused, memorized passwords).
If you do have super sensitive state secrets, well, probably none of this applies and realistically, you’re pretty effed, and nothing I know will protect you.
But otherwise… it’s fine
Hardware dongles aren’t worth the trouble, IMO, a huge PITA that just wastes your time.