Does the drone calculate its current altitude based on where you take off- meaning where we stand and launch is 0' altitude, or is is altitude based on "sea level" no matter what?
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Yes, where your P3 takeoff from is at '0' elevation.
My takeoff point was at ~1300' and the elevation at the rock formation is ~2000'. My max elevation was set at 650', so I never made it over the top....bummer.