Logging depends on the instance. Many admins choose to not log any data which could be used to identify any individual, but verifying their claims (without a doubt) as a single user is pretty much impossible and there’s nothing stopping an instance admin of gathering all the data (s)he wants to.

Like are they protected or encrypted so the hackers can’t use them ?

Passwords are encrypted, but in case of a security breach on an instance they are still vulnerable, like with any other password leak. Majority of the systems today use one way encryption with their passwords, but still millions and millions of user accounts are leaked almost daily.

Also what is stoping the instance owners from abusing or selling these behind our back ?

Nothing.

or running a modded version of lemmy are they detectable ?

If done properly, no, you can’t detect them.

But that’s not any different from any of the services around the net. Companies like Meta and Google make their money by selling user data, advertisers track you and all the other things you’re most likely already aware of.

Administrator of my instance said that they don’t gather IP addresses or any other data they don’t need to keep the servers running and I trust them on that, but your mileage may vary. And then there’s different legal systems around the world where an admin might be forced to give out information about individual user, but where I live that’s not a thing.