You said:

According to E = M * the speed of light squared, Energy can be extracted from matter. We have proven this with atomic bombs. In theory, we should be able to get matter from energy. If this is true, then they must be connected, and I think that connection is that at the smallest level, they are the same.

I agree that energy has been extracted from matter through nuclear forces, I also agree that the reverse process should be possible.

According to the formula E=MC^2 a little bit of mass can convert to a lot of energy, conversely M=E/C^2 tells us that it takes an awful lot of energy to make a little bit of mass.

Now we have these two terms, mass (or matter) and energy, but we still do not know what they are, all we know is that somehow they "work together" to form everything we experience.

I have also studied the laws of physics to some extent and have always wondered when, how, or who separated the word energy from the description kinetic.

Since I have not located the reason for that separation, I still hold to the idea that whenever we talk about energy we are talking about kinetic energy, if we are talking about potential energy, then in my opinion, we are referring to the potential FOR kinetic energy.

In other words the smallest possible "particle" of mass must contain some kinetic energy and it must contain the potential for much grater amount of kinetic energy, even in its "rest state."

To put it another way the smallest particle is always "moving" or vibrating to some degree, but it has the potential to "move" or vibrate a lot.

There is more to the story, but I do not have time at the moment to continue.

How do you like my idea so far?

I can think of a case where potential energy of a rock on a hill may never be used. Say it is on a small asteroid, and the asteroid gets blasted apart in a collision, sending that rock flying off into space. It had potential energy, but its potential energy source, the asteroid's gravity, has been destroyed.

I read about an experiment that was done with a wound up spring, the idea was that the spring would have potential energy stored in it and if it then was destroyed by heating or dropping it into acid the potential energy would be lost, but after careful testing it was determined that there was more heat generated in the process of destruction of the wound up spring than there was in a non wound up one. so it proved that the potential (for) (kinetic) energy is not lost.

In your example then the rock might fly off into space at a greater speed than without the potential energy content.
Just guessing, perhaps it would simply become warmer than otherwise.