The problem really stems from the fact that our different security components are separate from one another, and don't entirely see eye to eye, leaving gaps for attackers to walk right on through. The current certificate system for certifying the identity of a website is flawed in theory, and in its implementation in many browsers.
The current system works as follows: An entity submits proof of ownership of the domain(s) it owns to one of hundreds of certificate authorities out there, who follow some kind of verification process, and then proceed to give a certificate identifying the site to that entity. This certificate is digitally signed by the certificate authority itself using their private unknown keys. Since no one but the certificate authority itself has their private keys, they're the only ones able to sign certificates in their own name. Browsers ship with a certificate bundle identifying the certificate authorities they trust. In this way, when you see a site with a certificate signed by a known certificate authority, you know it's the site you intended to visit.
Except there's some flaws with this idea. If terrorists wanted to, they could attack a certificate authority's physical headquarters and steal their private keys from their server and sign whatever they want for whichever domain they wish. Or, hackers could hack into machines remotely and perhaps get lucky and find some private keys on them. Or, anyone could start their own certificate authority. It really isn't that hard. Once your new authority becomes trusted by the various browsers, you can proceed to generate certificates for any domain desired.
This entire system has multiple points of failure. Further compounding the issue is that several "trusted" certificate authorities also are in themselves ISPs or run various links in the vast internet. Having both components in your control allow you to impersonate any site for any information passing through your systems. America Online for example is both a trusted certificate authority and an ISP, and anyone who works there and has access to their infrastructure and private keys can view all HTTPS encrypted data passing through their network as unencrypted. Want to buy something with your credit card online? You might want to traceroute your connection first and ensure no one along the way is also a certificate authority your browser trusts.
In order to mitigate a certificate authority signing something it shouldn't have, they invented Certificate Revocation Lists. Where an authority can revoke specific certificates it once signed, since every certificate also has an ID number associated with it. But, some browsers don't even bother checking these lists. Further, some browsers which make use of CRLs and their friends, resume as if nothing happened if they couldn't access a CRL for some reason. Further, these CRLs are subject to the same security problems just described for domains in general. How do I know this is indeed the real CRL? Also, browsers themselves don't have CRLs for the root certificates they ship with, so they are unable to revoke a certificate of a rogue CA if they need to.
But in reality, this entire system is flawed from the ground up. It's so flawed, it doesn't even make the slightest bit of sense. Imagine the following scenario where my boss asks me to inform him of all purchasing details for our web presence needs, and explain why they're needed.
<Me> Okay, we're going to need $35 a year to register all the domains we want for our company, such as company.com and company.net and so on.
<Him> Sure, that's fine, what else?
<Me> Then we're going to need $200 a year for each domain for certificates.
<Him> Why do we need these certificates?
<Me> To prove that we own the domain in question.
<Him> Prove it? Why?
<Me> Browsers like Internet Explorer and Firefox won't realize when they visit our domain that its really our domain, and not some hacker out there trying to impersonate us.
<Him> So if we don't buy these certificates, hackers will be able to get the domain names registered as their own instead of ours?
<Me> No, the domain names are protected by a central authority, they know that we own them, and we tell them to point the domains at our servers, but hackers in between our customer's browser and our server can hijack the connection and make believe they're us without a certificate.
<Him> I don't get it, why can't our customer's browser just check the domain registry and make sure the server they reach is the one we told the domain registry about? Why do we need to buy something from a 3rd party?
This seems strange to you? He's absolutely right. Why can't the hierarchy for domain management also distribute the public keys for our servers? The systems will need to be modified to combine several components and have encryption at each level, but does anything else make an ounce of sense?
Imagine you wanted to buy some property. You have your lawyer, accountant, realtor, and other people directly related to the purchase. After everything is taken care of, and you submit forms to city hall and everything else, you then go down to Joe's House of Fine Refrigerators and have him give you a signed deed that you indeed own the property in question. Makes a lot of sense, right?
Now you call a construction company down to work on your new property, say to merge it with the property next door to it. They want proof you own both properties before beginning. What do you do? You pull out your deed from Joe's House of Fine Refrigerators.
This is the exact state of internet security today. This problem is even pervasive down to every level of infrastructure we use.
Take cookies for example, the system it uses to match domain names runs completely counter to how the domain name system works. It's actually impossible for any browser to properly know for every set of domains in existence whether they're paired or not when it comes to handling cookies for them. It will either fail to submit cookies to some sites that it should, or submit cookies to some sites it shouldn't. Some browsers try to solve this problem with a massive hack, a list of domains that cookies should know are or aren't paired together, which is also incomplete, and needs never ending updates. Without the list, the only difference is that the browser is just wrong more often than without it.
Really, if the hackers were out there, we'd be in big trouble.