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In this manga there is a blonde haired guy that was named hero for something he didn't do. When it was discovered that he was a fraud, they were going to put him to death.

He managed to escape jail with the help of a female, and decided to steal from the castle Treasury because of the humiliation they had put him through. There he found a shovel that could dig through anything and a sealed (think it was under a sword) demon who told him that it could grant 3 wishes.

Wish #1 was to kill the guy who had embarrassed and humiliated him. Magical collars were put on all of the castles citizens, and once all 3 wishes were granted they would all be killed.

Enemy attacked MC ended up killing someone he cares about; MC goes ballistic and reverses time to undo her death and then proceeded to teach this demon a lesson on not messing with people it knows nothing about.

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Chillin' in Another World with Level 2 Super Cheat Powers. I been looking for the same thing and just found it when I came across this question

Front cover of Chillin' in Another World with Level 2 Super Cheat Powers

Banaza is summoned to another world by the Kingdom of Klyrode as a hero candidate, but is found to have inadequate skills and banished to a dangerous forest. After slaying a slime, Banaza levels up and gets infinite stats, making him the most powerful; using his new skills, he disguises himself as Flio, in order to stay out the conflict between humans and demons. However, fate has funny way of dragging him in.

Chapter 5

.... In response, he is guided into breaking the seal on a powerful Djinn who slaughters innocents to grant wishes by drawing a sword, and orders her to kill Flio. The Djinn then places sacrificing collars on the necks of everyone in the castle that will eventually cut off their heads once her wish is fulfilled, intending to use their deaths as payment for her wishes...

Chapter 6

In a feat of uncontrollable rage, Flio mercilessly beats Hiya whilst cancelling her magic with his Infinite Power Levels, rendering her defenseless. His new magic also heals Rys by time manipulation....

Chapter 8

.... The Blonde Hero reveals that he stole a bag of money that he considers as payment for his work, but it does not contain money, only a magical shovel ....

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    In which chapters do the plot points described in the question occur? I've skimmed the first dozen or so chapters of this manga and don't recall any of that stuff. Also, the main character has brown (not blond) hair.
    – LogicDictates
    Commented Mar 29 at 12:45
  • I'm very sure this is the correct one. The blonde "hero" gets summoned alongside the MC at the beginning and is chosen as the hero of the kingdom. He loses this status pretty fast, breaks into the royal treasury, steals the shovel mentioned in the question and summons the demon by accident. Chapter 10 and 11 contain the main part of this arc.
    – TheBourbonKid
    Commented Apr 30 at 5:38

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