Bitcoin transactions do, LN transactions have completely different characteristics, including having to settle back on-chain for security.

The Lightning Network literally exchanges Bitcoin transactions that are withheld from being broadcasted on-chain until channel closure. Bitcoins exchanged via the Lightning Network are just Bitcoins. Saying they are a different kind of "IOU" or token is a lie often employed by alt-coiners trying to push a "Layer 1-only"-Bitcoin fork (e.g. BSV).

The security in the Lightning Network doesn't come from settling on-chain after a transaction happened but from signing over all your money in a Lightning Network channel to the other party should somebody catch you cheating.

The real lie is saying that LN transactions are "just Bitcoins".

They are unconfirmed transactions and there are many ways of losing your funds compared to confirmed ones. Such as having your harddrive corrupted and your node trying to propagate an old state.

Unconfirmed Bitcoin transactions are still Bitcoin transactions, with the advantage that on the Lightning Network you have a built-in protection against doublespends in contrast to accepting 0-conf tx.

You are correct that funds in a Lightning Network wallet are at higher risks than those in a cold wallet, but this applies to all "hot" crypto wallets. Most LN wallets supports "Static Channel Backups" which you only create and store once after setting up a channel. In case your phone goes up in flames, you can use it to safely close your channels and receive your balance.

From the perspective of (black) market participants, the characteristics of LN are preferable. Including privacy aspects.

Or you could just hand someone the private key to your address that contains $100. Let them figure out how to obfuscate their stuff.

Nobody is going to accept this as payment for something illicit. They know you've seen the private key. They have no reason not to assume you have something set up to sweep the wallet as soon as they accept the "payment."

“Opendime is a small USB stick that allows you to spend Bitcoin like a dollar bill. Pass it along multiple times. Connect to any USB to check balance. Unseal anytime to spend online. Trust no one.”

https://opendime.com/

That's not the same as just "handing someone your private key."

It involves either buying or creating a tamper resistant device and a reputation for authenticity.

It's significantly more complicated.

You can put the money in an off chain escrow like Lightning for things like this though.