In Act 1, Scene 3 of William Shakespeare's The Merchant of Venice, in the stanza beginning "Mark you this, Bassanio" to "what a goodly outside falsehood hath!," what light do the lines, "Is like a villain with a smiling cheek/A goodly apple rotten at the heart;/O, what a goodly outside falsehood hath!" throw upon the character of Shylock?

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Antonio is the character in The Merchant of Venice by William Shakespeare who speaks the lines you mention, and he speaks the lines about Shylock. The two men are anything but friends, and this speech shows Antonio's total disdain for Shylock, the Jewish moneylender.

Bassanio needs money to become a suitor to Portia, so of course he asks his friend Antonio, who often lends money to people without interest (a fact which infuriates Shylock, by the way). Unfortunately, Antonio's money is tied up at the moment, so he sends Bassanio to borrow it elsewhere, saying he will guarantee the loan. Unfortunately, Bassanio makes an agreement with Shylock, Antonio's hated enemy and a man Antonio has insulted publicly many times before, mostly because Shylock is a Jew and Antonio is a Christian and the hatred between the two religions runs deep.

Before Shylock will agree to the deal, he insists on speaking to Antonio, as well. The speech you mention in your question happens during this conversation. Shylock has just used Scripture (in the form of a story about Jacob found in the Bible) to accuse Antonio of taking his interest for the money he lends in devious ways. Antonio then speaks these lines in a kind of aside to Bassanio:

Mark you this, Bassanio,
The devil can cite Scripture for his purpose.
An evil soul producing holy witness
Is like a villain with a smiling cheek,
A goodly apple rotten at the heart:
O, what a goodly outside falsehood hath!

Antonio is accusing Shylock of being "the devil in disguise," so to speak, as Satan also used the Bible to try to trick Jesus. In the specific lines you mention, Antonio describes Shylock as a man who looks good on the outside ("smiling cheek" and "goodly apple") but who is evil on the inside ("villain" and "rotten at the heart"). The last line of the speech summarizes that contention: Shylock appears to be a good and pious man but is really a lying villain. 

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