With a hosted wallet, the crypto exchange typically holds on to your private key for you. This private information is kept and accessed online, which makes it potentially vulnerable to hackers. Hosted wallets may also be limited in their uses, and you may not be able to execute certain crypto transactionsโsuch as buying an NFT โwith crypto thatโs in a hosted wallet. On the plus side, forgetting your password is usually not a problem, because the exchange has ways to help you retrieve that data.