Elon Musk is a 39-year-old engineer and serial entrepreneur. At 28, he co-founded popular e-payment company Paypal. He then went on to start SpaceX, the first private company to launch a rocket into space, and Tesla Motors, which builds electric cars.

I recently talked to Musk about inventions he thinks will change the world. You can check out the transcript below and watch part of our Skype conversation, which encapsulates Musk’s particular brand of big, big thinking (in particular, why we should expand human life into space).

Amar Bakshi: What three inventions do you foresee changing the world in the years ahead?

Elon Musk: One of the most important things that I think that will be invented this century, hopefully by SpaceX, is the first (1) fully reusable orbital rocket. It’s the fundamental invention necessary for humanity to expand to the stars and to become multiplanetary. (Check out the video above to see why Musk thinks expanding to the stars is important for humanity.)

The cost of fuel is only about 0.2% or 0.3% of the cost of the rocket. In fact, the cost to refuel one of our Falcon 9 rockets is about as much as the cost to refuel a Boeing 747 plane.

However, a 747 can be used tens of thousands of times. And that’s the reason a ticket to London doesn’t cost a half a billion dollars (a 747 is about a quarter-billion dollars, and you would need two of them for a round-trip flight if you didn’t have reusable planes). Now you’re paying a few thousand dollars for the ticket because you can reuse the craft.

(2) Rapid, low-cost, perfect DNA sequencing will have a huge effect on humanity. Human DNA has not yet been completely decoded. The most that anyone has gotten is about 91% or 92%, and that has been with a huge numbers of errors. Trying to read our DNA is like trying to understand software code - with only 90% of the code riddled with errors. It’s very difficult in that case to understand and predict what that software code is going to do.

That’s where things are right now in DNA decoding. There’s a company called Halcyon that’s trying to solve that problem. I’m an investor, and I’m on the Board of Halcyon, but I think if Halcyon succeeds in doing perfect DNA sequencing, it will have a huge impact on humanity.

I should mention another important thing. With DNA, you have to be able to tell which genes are turned on or off. Current DNA sequencing cannot do that. The next generation of DNA sequencing needs to be able to do this. If somebody invents this, then we can start to very precisely identify cures for diseases. It will be a really huge advancement for humanity.

We’ll be able to design treatments specifically for individual people and be able to tell beforehand if certain treatments would result in negative side effects for certain individuals.

There are a lot of people that think (3) viable fusion is not possible. But fusion is the “energy forever” solution. You know all energy in the universe originates with fusion. We get our energy from the sun, so that’s indirect reliance on fusion.

Do I think it will be solved this century? It may not be possible – or at least, not on a commercially viable scale. It’s a very, very difficult technical problem, one of the most difficult technical problems that humanity will ever try to solve. But if we solve it, we will have “energy forever.”

Bakshi: Where do you think these innovations are going to happen? Around the world? Or mostly on the west coast of the U.S.?

Musk: Primarily the west coast of the U.S. It is remarkable how much is invented in California. It’s kind of ridiculous. It’s not necessarily the people who were born in California. It’s just that people come here because this is an environment that is really conducive to invention despite the high taxes and all the constraints that one faces.

I was born in Africa. I came to California because it’s really where new technologies can be brought to fruition, and I don’t see a viable competitor. It’s not to say that California is perfect – far from it. But it’s the least imperfect of any place in the world that I know of for bringing new inventions to mass market.

Silicon Valley has evolved a critical mass of engineers and venture capitalists and all the support structure – the law firms, the real estate, all that – that are all actually geared toward being accepting of startups.

You go to some other part of the world, and you know you can't get a lease because your company hasn’t been around long enough; the law firm won't give you legal advice, nobody will give you funding, you can't find the technical talent you need. But in California, all this has arisen organically.