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I've downloaded a few LAS files from the NOAA:

http://www.csc.noaa.gov/digitalcoast/data/coastallidar

I used lasinfo to get the coordinate system of the LAS files and it returned:

GCS_NAD_1983_NSRS2007
WKID: 4759 Authority: EPSG

Angular Unit: Degree (0.0174532925199433)
Prime Meridian: Greenwich (0.0)
Datum: D_NAD_1983_NSRS2007
  Spheroid: GRS_1980
    Semimajor Axis: 6378137.0
    Semiminor Axis: 6356752.314140356
    Inverse Flattening: 298.257222101

This is a geographic coordinate system and does not contain a linear unit.

I saw this quote in the ESRI documentation:

It is recommended that LAS data be delivered and consumed in a projected coordinate system, for example, UTM or NAD83 State Plane. LAS data that is captured in Geographic coordinates can be displayed, but some functionality may fail or be suboptimal.

What type of functionality may fail or be suboptimal? I wish they said a little more here.

I'm not positive, but I think this may be the reason I'm having trouble creating a DEM from the LAS points - because it's in a geographic coordinate system? The DEM appears to be correct, but when I add it to ArcScene and set the base heights to itself, it's all messed up.

When is the best time to reproject? Do I reproject the LAS file itself, or after I create the multipoint feature? Or do I reproject the DEM itself?

Also, the website states the resolution as:

Resolution: Point density is 0.1 to 8 pts/meter2

What would this be equivalent to?

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Yes, geographic coordinates and DEM is bad, depending upon your software of course; several Esri functions don't work properly in geographic coordinates. Your point spacing becomes tiny and so does your cell size.

I believe las2las will reproject LiDAR data based on the readme. This data is supplied in geographic coordinates possibly because it needs to cover a very large area and a projected coordinate system would not be a SRID coordinate system to cover that.

I definitely recommend projecting geographic las to projected las or tools like las2dem probably wont produce intended results, possibly due to small number rounding.

Another case to reproject LiDAR data is when you are supplied las files in different coordinate systems - pick one and project the others.

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