1. Would it be useful in other contexts to be able to find "small enough" hashes?
Most of the applications of cryptography in real life requires the property of it having to have a certain degree of pre-image resistance. If that were to be broken, the hash is no longer a one way function, to which it becomes useless for certain real-life applications. Even before that, we have the collision resistance being broken, which already means that the hash function wouldn't be very useful for sensitive operations.
2. Perhaps there are other very valuable uses, but Bitcoin does have half a trillion market cap. You could for example place a gigantic leveraged short on BTCUSD just before publishing your proof that SHA-256 is broken. Or you could rebuild the chain unchanged except for reassigning the Satoshi wallet to yourself.
The latter is not possible. As for the former, if you were to approach NSA or related organizations directly, you would probably have a guaranteed payout rather than to attack the chain and risk being labelled a criminal and getting yourself investigated. You'd probably have much better things to do if you could discover a feasible way to generate collisions anyways (at low costs of course).
Anyways, current resistance is still sufficiently high and that is expected for the near future.
Why would all of cryptography be dead if this was possible for a specific hash function?
Because historically well studied algorithms has never been broken with very little computational power/efforts. If you were to prove that one-way function don't exist, ie. P=NP, then any other cryptography functions would also be dead.
i think you might be assuming sha256 is a one-way function. it might not be. and thus there could be an easy way to reverse it that no one ever though of yet.
Proving P=NP would be sufficient to prove SHA256 is not a one-way function.
maybe their approach was just less than optimal.
Nope. That is just not what ASICs do.
Not sure about that.
Then a concrete proof would be good, either that of a past algorithm that has been broken or any theoretical attacks.
they would just need to use something more secure.
You can't really do much once you prove P=NP.