I don't know how this works now, but in the past it was a problematic option. For example, if you used sudo and TRAMP to do some local administration tasks, it would store those files in your own account. This was a security issue.
Nowadays there is a configurable tramp-allow-unsafe-temporary-files variable, which defaults to annoying me by prompting.
Potentially a problem when editing any file with secrets, right? (though, tbh if your home directory is compromised you are in a lot of trouble already).
That's a good point. It seems smart to use the default backup behavior whenever tramp is used.