I actually really like this game as a whole! The concept is unique and interesting, and there are enough different mechanics that help to mix up the gameplay quite a bit. I especially like the moments where I have to reflect off of one color's walls in order to access another color's. I felt like this game picked all the right parts of my brain as I played it, and I'll likely see myself playing it again!
Probably the biggest issue I had with the game though was the life crystals. While I initially liked the concept of them in the tutorial, I quickly discovered just how difficult they were to use in practice with moving puzzle heads. I feel like the life crystal itself is too big and too easily destroy to be used quickly, and easily the most frustrating parts of playing came from when I was forced to use them. Also, if my understanding is correct, the life crystals determine how many "continues" you have? I may be wrong, but I remember reading something about that in the tutorial. If that's the case, then I have even LESS incentive to use them...
All in all, though I like the style. I love the way the beam interacts with literally everything (including the tutorial windows and title screen). I'd be interested to see where this goes in the future!
I think the two solutions you proposed for the life crystals are good ones. If it behaved less like a resource to gain and lose and more like an additional game mechanic to make use of, it might go a long way in terms of easing frustration. For me, when it comes to limited resources in games (especially in puzzle games) I have a bad habit of hording them for as long as possible "in case I need it later," and then end up just never using them. I'm fairly certain a lot of players tend to think this way as well.
Is there ever an instance when using more than one life crystal at the same time is a good idea? I feel like, given the pace of the game, that might be really tricky to coordinate. If that's the case, maybe just having a button that you can drag the "one-and-only" life crystal out of whenever you need it would make more sense than earning one by getting X points and losing it to a silly mistake that's easy to make when you're starting out. Then, if the crystal gets hit, it'd just return back to the button for re-use instead of going away forever.
I also think shrinking the size is a very good idea. I'm not sure how much it would affect gameplay, as you're right in the fact that it gives you less room for error in placing it, but I think it's worth experimenting around with the size a bit until you find a happy medium. If you make it small, perhaps players might find it a lot easier to put the burden of reflection precision on the act of dragging the life crystal around with a beam already on it, rather than moving the side arrows to find the right spot on the crystal.
Hope this all makes some kind of sense!