How does your browser know that the padlock is not a fake?

The padlock means your browser checked a certificate, a digital document that certifies the ownership of a public key by the named website. A certificate authority, or CA, issues it and acts as a trusted third party, trusted both by the site's owner and by the visitor who relies on it.

Encryption alone is not enough. When you connect, your browser and the site use a handshake with an asymmetric cipher to establish a shared key, and then use that key to encrypt the rest of the conversation with a symmetric cipher. But a malicious party sitting on the route could pretend to be the target server, the classic man-in-the-middle attack. A certificate is what makes that fake detectable. Browsers include a built-in set of trusted CA certificates, and since the browser already holds each authority's public key, it can verify the signature on the certificate the site presents. An impostor could copy a real site's certificate, but without the matching private key it cannot create the signature needed to prove it is the real site.

The system has one structural weakness: any CA a browser trusts can issue certificates for any domain it likes, and they will be accepted as valid whether they are legitimate or not. In June 2011 the Dutch CA DigiNotar was hacked and issued hundreds of fraudulent certificates, some of which were used for man-in-the-middle attacks on Iranian Gmail users. After more than 500 fake certificates were found, browser makers blacklisted all DigiNotar certificates, and the company was declared bankrupt that September.